XYZ firm has EBIT of $33 and assets of $200. The firm's debt carries an interest...

XYZ firm has EBIT of $33 and assets of $200. The firm's debt carries an interest rate of 6% and the firm has $1.90 of debt for every dollar of equity. The firm's tax rate is 34%. What is the firm's ROE?

21.98% 24.35% 24.06% 23.07%

Firm A uses debt and has $550 in equity. Firm B does not use debt and has $1,050 in equity. Both firms pay a 39% tax rate and both firms have EBIT of $54. Firm A has interest expense of $33. There are no other expenses. If EBIT doubles for both firms ROE for Firm A will be_______; ROE for Firm B will be _______.

7.92%; 5.77% 9.02%; 7.07% 8.32%; 6.27% 9.82%; 5.97%

Expert Solution

jeff jeffy answered 4 months ago

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