Debt versus equity financing

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Problem: Debt versus Equity Financing

You are considering a stock investment in one of two firms (NoEquity, Inc. and NoDebt, Inc.), both of which operate in the same industry and have identical operating income of $9.5 million. NoEquity, Inc. finances its $20 million in assets with $19 million in debt (on which it pays 10 percent interest annually) and $1 million in equity. NoDebt, Inc. finances its $20 million in assets with no debt and $20 million in equity. Both firms pay a tax rate of 30 percent on their taxable income.

Calculate the income available asset funders and return on assets-funder's investment for the two firms. (Enter your dollar answers in millions of dollars. Round all answers to 2 decimal places.)

Reference no: EM132630277

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