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7. (10 points) Assume a firm's rate of return on its assets (ROA) is 7%, its average cost of
debt is 6%, its debt is $500, and its equity is $200. Find the firm's rate of return on its
equity (ROE). Then recalculate the firm's ROE if it increased its debt to $1,000 while
maintaining the same ROA and average cost of debt.

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