Question
Question 5: 5 Points ( Please Show Work) Firms HD and LD are identical except for their level of debt and the interest rates they
Question 5: 5 Points ( Please Show Work)
Firms HD and LD are identical except for their level of debt and the interest rates they pay on debt. HD has more debt and pays a higher interest rate on that debt. Based on the data given below, what is the difference between the two firms' ROEs?
| Applicable to Both Firms | Firm HD's Data | Firm LD's Data | |||
| Assets | $200 | Debt ratio | 50% | Debt ratio | 30% |
| EBIT | $40 | Interest rate | 12% | Interest rate | 10% |
| Tax rate | 35% |
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Personal Finance
Authors: Elizabeth B. Goldsmith
1st Edition
0534544959, 9780534544959
