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Adams operates his $ 25000 firm using his own equity. Bob operates his firm with $ 12500 of his own money plus $ 12500 of
Adams operates his $25000 firm using his own equity. Bob operates his firm with $12500 of his own money plus $12500 of debt at a cost of 12 percent interest. Calculate Adams's and Bob's return on equity if their respective businesses produce earnings before interest and tax of $5500. Assume perfect markets.
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