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You are considering a stock investment in one of two firms (AllDebt, Inc., and AIEquity, Inc.), both of which operate in the same industry and
You are considering a stock investment in one of two firms (AllDebt, Inc., and AIEquity, Inc.), both of which operate in the same industry and have identical EBITDA of $16.5 million and operating income of $9.5 million. Alidebt, Inc., finances its $20 million in assets with $19 millon in debt (on which it pays 10 percent interest annually) and $1 million in equity. AllEquity, Ine, finances its $20 million in assets with no debt and $20 million in equity. Both firms pay a tax rate of 21 percent an their taxable income. Caiculate the income available to pay the asset-funders' investment-(the debt holders and stockholders) and resulting retum on assets for the two firms. (Enter your dollar answers in millions of dollars. Round all answers to 3 decimal places.)
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