Question
The total value of assets in firms ALPHA and BETA is 1 million euros. While ALPHA is completely financed with owners' equity, BETA finances 50%
The total value of assets in firms ALPHA and BETA is 1 million euros. While ALPHA is completely financed with owners' equity, BETA finances 50% of its assets with debt, which has an average interest rate of 10%. Earnings before interest and taxes amount to 0.2 million euros in both firms. According to this information:
a) Calculate ROA and ROE for both firms.
b) Why is ROE higher in BETA than in ALPHA?
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Carbon Markets Or Climate Finance?
Authors: Axel Michaelowa
1st Edition
0415743435, 978-0415743433
