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Firms Able and Baker are identical except for their level of debt and the interest rates they pay on debt. Each has $5 million in assets, $1 Million of EBIT, and has a 40% tax rate. However, firm A has a debt-to-assets ratio of 60% and pays 12% interest on its debt, while Firm B has a 40% debt ratio and pays only 10% interest on its debt. What is the difference between the two firms' ROEs?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92408404

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