The following are selected information on Firm A and Firm B. You are asked to complete the table by methodically calculating the missing information.

You will assume that Cost of Goods Sold (COGS) is 65% and that the company uses a marginal tax rate 35%.

Assume Cost of depreciation is Zero

FIRM A FIRM B

Revenue $ 3,000 $ 3,000

COGS 1,950 1,950

Gross Profit 1,050 1,050

Operating Expenses (300) (300)

EBIT 750 750

Interest Expense 0 23,846

EBT 750,769 726,154

Income Tax@ 35% 262,769 254,154

Net Income $ 488 $ 472

Earnings Per share - -

Dividend per share - -

Expected Return on Equity - -

Estimated Share Price - -

Market value of Equity - -

Market Value of Debt - -

Enterprise Value $ 2,181 $ 2,500

Outstanding Debt $ - $ 300

Shares outstanding 600 300

Cost of Debt 6% 8%

Beta 1.40 1.70

Expected return on Market 9% 9%

Dividend pay-out ratio 50% 60%

Dividend growth 2% 2%

Risk Free 3% 3%

Common Equity $ 600 $ 300

Company's debt trading @ N/A 105

Which Firm's shareholders are wealthier? Explain why!