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Firms HD and LD are identical except for their use of debt and the interest rates they pay--HD has more debt and thus must pay

Firms HD and LD are identical except for their use of debt and the interest rates they pay--HD has more debt and thus must pay a high interest rate. Both companies are small, so they are not subject to the interest deduction limitation.. Based on the data given below, how much higher or lower will HD's ROE be versus that of LD, i.e., what is ROEHD - ROELD? Do not round your intermediate calculations. Applicable to Both Firms $3,000,000 $350,000 25% Capital EBIT Tax rate a. 3.79 p.p. b. -4.80 p.p. c.-7.27 p.p. d. 14.10 p.p. e. -0.90 p.p. Wd Int. rate Firm HD's Data 70% 12% Firm LD's Data Wd Int. rate 20% 10%
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Firms HD and LD are identical except for their use of debt and the interest rates they pay--HD has more debt and thus must pay a high interest rate. Both companies are small, so they are not subject to the interest deduction limitation. Based on the data given below, how much higher or lower will HD's ROE be versus that of LD, i.e., what is ROEHD - ROE LD ? Do not round your intermediate calculations. a. 3.79 p.p. b. -4.80 p.p. c. 7.27 p.p. d. 14.10 p.p. e. -0.90 p.p

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