Question
You are considering a stock investment in one of two firms, both of which operate in the same industry and have identical EBITDA of $16.3
You are considering a stock investment in one of two firms, both of which operate in the same industry and have identical EBITDA of $16.3 million and an operating income of $8.5 million. Company 1, finances its $35 million in assets with $34 million in debt (on which it pays 10 percent interest annually) and $1 million in equity. Company 2, finances its $35 million in assets with no debt and $35 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. Round all answers to 4 decimal places if possible.
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