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You are considering a stock investment in one of two firms ( AllDebt , Incorporated, and AllEquity, Incorporated ) , both of which operate in

You are considering a stock investment in one of two firms (AllDebt, Incorporated, and AllEquity, Incorporated), both of which operate in the same industry and have identical EBITDA of $15.8 million and operating income of $7.0 million. AllDebt, Incorporated, finances its $20 million in assets with $19 million in debt (on which it pays 10 percent interest annually) and $1 million in equity. AllEquity, Incorporated, finances its $20 million in assets with no debt and $20 million in equity. Both firms pay a tax rate of 21 percent on their taxable income. You are considering a stock investment in one of two firms (AllDebt, Incorporated, and AllEquity,
Incorporated), both of which operate in the same industry and have identical EBITDA of $15.8 million
and operating income of $7.0 million. AllDebt, Incorporated, finances its $20 million in assets with
$19 million in debt (on which it pays 10 percent interest annually) and $1 million in equity. AllEquity,
Incorporated, finances its $20 million in assets with no debt and $20 million in equity. Both firms pay
a tax rate of 21 percent on their taxable income.
Calculate the income available to pay the asset funders (the debt holders and stockholders) and
resulting return on asset-funders' investment for the two firms.
Note: Enter your dollar answers in millions of dollars. Round all answers to 3 decimal places.
Calculate the income available to pay the asset funders (the debt holders and stockholders) and resulting return on asset-funders investment for the two firms.
Note: Enter your dollar answers in millions of dollars. Round all answers to 3 decimal places.
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