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HL and LL are identical firms 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 pays 12% interest on its debt, whereas LL has a 30% debt/ assets ratio and pays only 10% interest on debt. Calculate the rate of return on equity for each firm.

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Category:- Basic Finance
Reference No.:- M9995920

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