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3 . A firm is unlevered with an EBIT of $ 2 , 0 0 0 and a total equity of $ 2 0 ,

3. A firm is unlevered with an EBIT of $2,000 and a total equity of $20,000. Assuming no taxes, what would be the firms return on equity (ROE)? If the firm borrows debt and reaches a 40% total debt ratio, what would be its levered ROE under a 6% interest rate? If you invest $100 in the unlevered firm, to reach the levered ROE, what should you do?

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