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Firms A and B are identical except for their level of debt and the interest rates they pay on debt. Each has $2 million in
Firms A and B are identical except for their level of debt and the interest rates they pay on debt. Each has $2 million in assets, $400,000 of EBIT, and has a 40% tax rate. However, firm A has a debt-to-assets ratio of 40% and pays 14% interest on its debt, while Firm B has a 20% debt ratio and pays only 9% interest on its debt. What is the difference between the two firms' ROEs
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