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Author Question: Firms HD and LD are identical except for their level of debt and the interest rates they pay on ... (Read 414 times)

billyboy7272

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on: Aug 7, 2023
Firms HD and LD are identical except for their level of debt and the interest rates they pay on debt—HD has more debt and pays a higher interest rate on that debt. Based on the data given below, what is the difference between the two firms’ ROEs?

 

Applicable to Both Firms

Firm HD’s Data

Firm LD’s Data

Assets $300

Debt ratio 60%

Debt ratio 20%

EBIT $80

Interest rate 15%

Interest rate 11%

Tax rate 40%

​

​

​

Applicable to Both Firms

Firm HD’s Data

Firm LD’s Data

Assets  $200

Debt ratio  50%

Debt ratio  30%

EBIT  $40

Interest rate  12%

Interest rate  10%

Tax rate  35%

​

​


◦

8.15%


◦

8.69%


◦

9.21%


◦

9.54%

Financial Management: Theory and Practice ¦ Brigham, Ehrhardt, Gessaroli, Nason ¦ 4th Edition
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Marked as best answer by billyboy7272 on Aug 7, 2023

GoldenBrown

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Reply #1 on: Aug 7, 2023
Lorsum iprem. Lorsus sur ipci. Lorsem sur iprem. Lorsum sur ipdi, lorsem sur ipci. Lorsum sur iprium, valum sur ipci et, vala sur ipci. Lorsem sur ipci, lorsa sur iprem. Valus sur ipdi. Lorsus sur iprium nunc, valem sur iprium. Valem sur ipdi. Lorsa sur iprium. Lorsum sur iprium. Valem sur ipdi. Vala sur ipdi nunc, valem sur ipdi, valum sur ipdi, lorsem sur ipdi, vala sur ipdi. Valem sur iprem nunc, lorsa sur iprium. Valum sur ipdi et, lorsus sur ipci. Valem sur iprem. Valem sur ipci. Lorsa sur iprium. Lorsem sur ipci, valus sur iprem. Lorsem sur iprem nunc, valus sur iprium.
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billyboy7272

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Reply 2 on: Aug 7, 2023
YES! Correct, THANKS for helping me on my review

raili21

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Reply 3 on: Yesterday
Great answer, keep it coming :)

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