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You are considering stock investment in one of two firms AlDebt, Inc. and Alquity, Inc), both of which operate in the same industry and have
You are considering stock investment in one of two firms AlDebt, Inc. and Alquity, Inc), both of which operate in the same industry and have identical operating income of $600,000. Al Debt, Inc. finances its 512 million in assets with 5 million in debt on which it pays 10 percent interest annual and $2 million in equity, AliEquity, Inc. finances is $12 milion in assets with no debt and 512 milion in equity Bothfins pay tax rate of 30 percent on the table income What are the set fundere debet holders and stockholdersresulting retum on esses for the two frms? 50% and 50% respectively O 375% and 35%, respectively 0 2917% and 35. respectively O 375% and 375.respectively
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