33. There are two firms: Firm U and Firm L. Both firms have $100M total assets and $16M EBIT (earnings before interest and taxes). Firm U is an unleveraged firm without debt. Firm L is a leveraged firm with 50% of debt and 50% of common equity. The pre-tax cost of debt for Firm L is 8%. Both firms have 30% corporate tax rate. Calculate the return on equity (ROE) for firm U 9.6% 11.2% 12.0% 15.2% 34. Based on the information from Question 33, what’s the return on equity (ROE) for firm L 9.6% 13.2% 16.8% 19.2% Question 35 Based on the information from Question 33, what’s the difference of the total dollars paid to all investors in Firm L and Firm U $1.0 million $4.8 million $5.8 million $1.2 million
33. There are two firms: Firm U and Firm L. Both firms have $100M total assets and $16M EBIT (earnings before interest and taxes). Firm U is an unleveraged firm without debt. Firm L is a leveraged firm with 50% of debt and 50% of common equity. The pre-tax cost of debt for Firm L is 8%. Both firms have 30% corporate tax rate. Calculate the return on equity (ROE) for firm U 9.6% 11.2% 12.0% 15.2% 34. Based on the information from Question 33, what’s the return on equity (ROE) for firm L 9.6% 13.2% 16.8% 19.2% Question 35 Based on the information from Question 33, what’s the difference of the total dollars paid to all investors in Firm L and Firm U $1.0 million $4.8 million $5.8 million $1.2 million
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
33. There are two firms: Firm U and Firm L. Both firms have $100M total assets and $16M EBIT (earnings before interest and taxes). Firm U is an unleveraged firm without debt. Firm L is a leveraged firm with 50% of debt and 50% of common equity. The pre-tax cost of debt for Firm L is 8%. Both firms have 30% corporate tax rate. Calculate the
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9.6% |
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11.2% |
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12.0% |
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15.2% |
34. Based on the information from Question 33, what’s the return on equity (ROE) for firm L
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9.6% |
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13.2% |
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16.8% |
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19.2% |
Question 35
Based on the information from Question 33, what’s the difference of the total dollars paid to all investors in Firm L and Firm U
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$1.0 million |
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$4.8 million |
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$5.8 million |
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$1.2 million |
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