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irms HL and UL are identical except foc their finandal leverage ratios and the interent rates they pay on debt. Each bas $18mili on in
irms HL and UL are identical except foc their finandal leverage ratios and the interent rates they pay on debt. Each bas $18mili on in invelted cap tal, has $2.7 milion of E8IT, and in the 25% federal-plus-state tax bracket. Firm HL, however, has a debt-to-capital ratio of 45% and p3rs 11% interest on its debt, whereas 4has a 25% debt-to-capital natio and abys only 8% interest on its debt. Neither firm uses preferred stock in its capital structure. a. Caloslate the return on tivested casital (reotC) for each firm. Round your answers to tro decimal places. AOic for firm UL nolc for firm hL- b. Culculate the rate of return on equty (Rot) for eech firm. Round your answers to two decimai places. Rot for firm ul w.ot fer fim HLdebe tin tsw. Calcuate the new RoE for iL. Round rour anwwer to two decimat places
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