1. Company ABC has $100 million in assets. It is financed with $95 million in Owners Equity and with $5 million borrowed at 5%. Company XYZ owns the same assets, but borrowed $25 million at a 6% rate.

Suppose both companies produced revenue of $60 million and incur operating costs of $40 million. What are the ROEs and coverage ratios for each?

If, instead, revenue for both declines this year by 10% while costs fall by 5%, calculate the percentage cage in profits for each. What are the new ROEs and coverage ratios?