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Firm AB and Firm YZ are identical except for their debt-to-total assets ratios (D/TAs) and interest rates on debt. (The capital structure of each firm consists of debt and common equity only.) 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 Firm YZ has 60 percent D/TA ratio and pays 10 percent interest on debt. Each firm has 5,000 shares of common stock outstanding. Calculate each firm's EPS and ROE Net income/Equity).

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92747527

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