VP and HP had the following balance sheets as at December 31, 2010. VP HP Current assets Tk.100,000 Tk.80,000 120.000 Fixed Assets 100.000 Tk 200.000 Tk 200,000 Tk.20,000 Tk.80,000 Total assets Current liabilities Long term liabilities Common equity 80,000 20,000 100,000 100,000 Tk 200,000 Ik.200.000 Total liabilities and equity Earnings before interest and taxes for both firms were Tk. 30 million and tax rate is 35%. What is the return on equity if interest rate on current liabilities is 10% and that on long term liability is 13%. i) ii) Assume that the short term rate rises to 20% and the rate on new long term debt rises to 16%, the rate on existing long term debt remains to unchanged. What will be ROE for both firms under these conditions? Which company is in riskier position? Why? iii) VP and HP had the following balance sheets as at December 31, 2010. VP HP Current assets Tk.100,000 Tk.80,000 120.000 Fixed Assets 100.000 Tk 200.000 Tk 200,000 Tk.20,000 Tk.80,000 Total assets Current liabilities Long term liabilities Common equity 80,000 20,000 100,000 100,000 Tk 200,000 Ik.200.000 Total liabilities and equity Earnings before interest and taxes for both firms were Tk. 30 million and tax rate is 35%. What is the return on equity if interest rate on current liabilities is 10% and that on long term liability is 13%. i) ii) Assume that the short term rate rises to 20% and the rate on new long term debt rises to 16%, the rate on existing long term debt remains to unchanged. What will be ROE for both firms under these conditions? Which company is in riskier position? Why? iii)