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Now, to develop an example which can be presented to Bernie’s management to illustrate the effects of financial leverage, consider two hypothetical firms: Firm U, which uses no debt financing, and Firm L, which uses $25,000 of 6 percent debt. Both firms have $100,000 in assets, a 30 percent tax rate, and an expected EBIT of $15,000. Construct partial income statements, which start with EBIT, for the two firms.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92861328

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