What is roehd - roeld, Firms HD and LD are identical except

What is roehd - roeld

Reference no: EM13305630

Firms HD and LD are identical except for their use of debt and the interest rates they pay--HD has more debt and thus must pay a higher interest rate. Based on the data given below, how much higher or lower will HD's ROE be versus that of LD, i.e., what is ROEHD - ROELD?

Applicable to Both Firms

Firm HD's Data

Firm LD's Data

Assets
$3,000,000
Debt ratio
70%
Debt ratio
20%
EBIT
$500,000
Int. rate
12%
Int. rate
10%
Tax rate
35%

Reference no: EM13305630

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