(Answered) Assume there are two firms l and u which are identical in

Management Studies

Assume there are two firms, L and U, which are identical in all respects except that firm L has 10 per cent, Rs 5,00,000 debentures. The earnings before interest and taxes (EBIT) of both the firms are equal, that is, Rs 1, 00,000. The equity-capitalization rate (ke) of firm L is higher (16 per cent) than that of firm U (12.5 per cent).

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