2, Adams operates his $27500 firm using his own equity. Bob operates his firm with $13750 of his own money plus $13750 of debt at a cost of 10 percent interest. Calculate Adams's and Bob's return on equity if their respective businesses produce earnings before interest and tax of $8000. Assume perfect markets. Adams's return on equity: ___% Bob's return on equity: ______%

Place your answer in percentage form with two decimal places. For example, an answer of eleven point five zero percent would be entered 11.50

8, Santos Unlimited (SU) was originally unlevered with 4000 shares outstanding. However, after a major financial restructure, SU now has $36000 of debt, with an annual interest expense of 6 percent. The restructuring has reduced the number of shares to 3000. A group of shareholders of SU are not convinced that this move towards adopting financial leverage is a good idea. Their main argument is that there is now some range of EBIT, however low, that will make the shareholders worse off than before. Help understand the situation better by computing the level of earnings before interest and tax (EBIT) that would make shareholders indifferent between being unlevered (i.e. not having any debt) and levered (i.e. having debt). Assume a 32 percent corporate tax rate. Answer: $_____

Place your answer to the nearest dollar without a dollar sign or a comma (if applicable)