Firms A and B are identical except for their level of debt and the interest rates they pay on debt. Each has $2 million in assets, $4000 of EBIT, and has a 40% tax rate. Firm A has a debt-to-assets ratio of 50% and pays 12% interest on its debt, while Firm B has a 30% debt ration and pays only 10% interest on its debt. What is the difference between the two firms ROEs?© BrainMass Inc. brainmass.com June 3, 2020, 11:45 pm ad1c9bdddf
What is the difference between the two firms ROEs?