Question
Two firms, Red and Purple, have identical annual EBIT (no tax); Firm Red has $2000 Equity and Firm Purple has $500 Equity and $1500 Debt
Two firms, Red and Purple, have identical annual EBIT (no tax); Firm Red has $2000
Equity and Firm Purple has $500 Equity and $1500 Debt at 5% of interest. Assume 4
possible outcomes for Firm Red as below (the 4 outcomes occur with the same probability).
| Outcome 1 | Outcome 2 | Outcome 3 | Outcome 4 |
| EBIT=300 | EBIT=200 | EBIT=150 | EBIT=50 |
What are the ROE for firm Red and Firm Purple?
What are the ROE Standard deviations for Firm Red and Firm Purple?
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International Business Competing In The Global Marketplace
Authors: Charles Hill
14th Edition
1260387542, 9781260387544
