Question
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
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 $15.9 million and operating income of $6.5 million. AllDebt, Incorporated, finances its $25 million in assets with $24 million in debt (on which it pays 10 percent interest annually) and $1 million in equity. AllEquity, Incorporated, finances its $25 million in assets with no debt and $25 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.
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