Calculate the return on equity for firm u

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There are two firms: Firm U and Firm L. Both firms have $100M total assets and $15M EBIT (earnings before interest and taxes). Firm U is an unleveraged firm without debt. Firm L is a leveraged firm with 50% of debt and 50% of common equity. The pre-tax cost of debt for Firm L is 10%. Both firms have 30% corporate tax rate. Calculate the return on equity (ROE) for firm U.

Based on the information from the Question above, what's the return on equity (ROE) for firm L, and what's the difference of the total dollars paid to all investors in Firm L and Firm U?

Reference no: EM132828271

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