Explore BrainMass

Explore BrainMass

    two firms ROEs

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    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
    https://brainmass.com/business/business-math/two-firms-roes-295717

    Solution Summary

    What is the difference between the two firms ROEs?

    $2.19

    ADVERTISEMENT