Consider two hypothetical firms, Firm U, with zero debt financing, and Firm L, with $10,000 of 12% debt Both firms have $20,000 in invested capital and a 40% federal-plus-state tax rate. 17 18 (1) Complete the partial income statements and the firms' ratios. 19 20 Total capital for both firms 21 Tax rate for both firms 22 Debt ratio for Firm U 23 Debt ratio for Firm L 24 Cost of debt for Firm L 25 26 27 TOTAL CAPITAL 28 EQUITY 29 30 PROBABILITY 31 SALES 32 OPER. COSTS 33 EBIT 34 INTEREST EXPENSE 35 EBT 36 TAXES (40%) 37 NET INCOME 0% FIRM U S0 S0 S0 S0 S0 $0 SO SO FIRM L SO SO S0 $0 0.25 0.50 0.25 0.25 0.50 0.25 SO SO S0 SO S0 $0 S0 $0 S0 $0 S0 39 ROIC 40 ROE 41 TIE #DIVO! #DIVO! #DIVO! #DIV/0! #DIV/0! #DIV/0! #DIVO! #DIV/O! #DIVO! #DIVO! #DIVO! #DIVO! #DIV/0! #DIV/0! #DIV/0! 43 E(ROIC 44 E(ROE) 45 E(TIE) #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! x 47 SD(ROIC) 48 SD(ROE) 49 SD(TIE) #DIV/0 ! #DIV/0! #DIV/0! #DIV/0! #DIV/0