Financial Leverage Effects. Deep River Brands, a Swiss company, earned net income before interest and taxes of SFr1,500,000 on sales of SFr30,000,000 and an average asset investment of SFr20,000,000. Total debt averaged SFr5,000,000 at 8 percent interest.

Valley Brands, a French competitor, also reported net income before interest and taxes of \(\mathrm{Fr} 1,500,000\) on sales of \(\mathrm{Fr} 30,000,000\) and an average asset investment of \(\operatorname{Fr} 20,000,000\). However, total debt averaged \(\mathrm{Fr} 15,000,000\) at 8 percent interest. Taxes are 40 percent for both firms.
Required:
1. Compute the return on equity for Deep River Brands.
2. Compute the return on equity for Valley Brands.
3. Comment on the differences in return on equity between the two firms.