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Svetllana [295]
3 years ago
10

Firm AB and Firm YZ are identical except for their debt-to-total-assets ratios (D/TAs) and interest rates on debt. Each has $200

,000 in assets, $40,000 EBIT, and a 40 percent marginal tax rate. Firm AB has a D/TA ratio of 40 percent and pays 7.5 percent interest on its debt, whereas YZ has a 60 percent interest on its debt and pays 10 percent interest on debt. Each firm has 5,000 shares of common stock outstanding. Calculate each firm's EPS and ROE (ROE = Net income/Equity). Discuss your results.
Business
1 answer:
Vilka [71]3 years ago
3 0

Answer:

the correct answer is

NOT AB EPS = $3.08

AB ROE = 17%

YZ EPS = $2.36

YZ ROE = 18%

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