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24. Firm A is aggressive in its use of debt to leverage up its earnings for common stockholders, whereas Firm B is not aggressive and
24. Firm A is aggressive in its use of debt to leverage up its earnings for common stockholders, whereas Firm B is not aggressive and uses no debt. The two firms' operations are identical - they have the same total investor- supplied capital, sales, operating costs, and EBIT. Based on the following data, how much higher or lower is Firm A's ROE than that of Firm B? Total Invested Capital = $210,000; EBIT = $40,000; Tax Rate = 35%; Firm A's Data - Debt/Capital = 50%, interest rate is 12%; Firm B's Data - Debt/Capital = 0%, interest rate is 10% A) 4.90% B) 3.71% C) 4.58% D) 5.54% E) 3.76%
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