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1.Maxlever and Nolever are identical firms in all ways except that Maxlever employs debt in its capital structure but Nolever does not.EBIT for each firm

1.Maxlever and Nolever are identical firms in all ways except that Maxlever employs debt in its capital structure but Nolever does not.EBIT for each firm may be one of two outcomes: $5,000 or $10,000.The value of the equity in Maxlever is $40,000, and the value of equity in Nolever is $80,000.Maxlever has 1,000 shares outstanding and Nolever has 2,000 shares outstanding.Maxlever's bonds have a market value and face value of $40,000.The interest rate is 10% and there are no taxes.

a.Compute EPS and ROE for both scenarios for both firms.

b.Compute the level of EBIT such that Maxlever and Nolever have the same EPS.

please write out any calculations and/or explanations

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