=+both pay out all profits after tax as dividends to equity holders. Borg has a debt ratio of 5 per cent, McEnroe of 20 per cent. In each case the rate of debt interest is 15 per cent a year. Assume a corporate tax rate of 40 per cent.

For each company in each year, calculate: (i) after-tax Return on Equity; (ii) earnings per share; and (iii) interest cover.