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Business, 07.04.2020 17:52 guazet7650

Firm's HL and LL are identical except for their leverage ratios and the interest rates they pay on debt. Each has $20 million in assets, $4 million of EBIT, and is in the 40 percent federal-plus-state tax bracket. Firm HL, however, has debt ratio (D/A) of 50 percent and pays 12 percent interest on its debt, whereas LL has a 30 percent debt ratio and pays only 10 percent interest on its debt. Calculate the rate of return on equity (ROE) for HL.

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