3. Consider two hypothetical firms: Firm U, which uses no debt financing, and Firm L, which uses 10,000 of 12 percent debt. Both firms have 20,000 in assets, a 40 percent tax rate, and an expected EBIT of 3,000. Construct partial income statements, which start with EBIT, for the two firms. Answer: Firm U Firm L Assets 20,000 20,000 Equity 20,000 10,000 3,000 3,000 EBIT INT (12%) EBT Taxes (40%) NI