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There are two firms: Firm U and Firm L. Both firms have $100M total assets and $30M EBIT (earnings before interest and taxes). Firm U
There are two firms: Firm U and Firm L. Both firms have $100M total assets and $30M EBIT (earnings before interest and taxes). Firm U is an unlevered firm without debt. Firm L is a levered firm with 50% debt and 50% common equity. The pre-tax cost of debt for Firm L is 10%. Both firms have a 20% corporate tax rate. Calculate the return on equity (ROE) for the unlevered firm U and Levered firm L. Group of answer choices 35%; 21% 21%; 35% 24%; 25% 25%; 24%
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