Firm hl has a debtassets ratio of 50 and parts 12 interest, Ask an Expert

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HL and LL are identical forms except for their capital structures. Each has $20 million in assets, earned $4 million before interest and taxes in 2012, and has a 40% marginal tax rate. Firm HL has a Debt/Assets ratio of 50% and parts 12% interest on its debt, whereas LL has a 30% debt/assets ratio and pays only 10% interest on debt. find out the rate of return on equity for each firm.

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