What is the difference between the two firms roes

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Reference no: EM13291146

Firms A and B are identical for their level of debt and the interest rates they pay on debt. Each has $3 million in assets, $400,000 of EBIT, and has a 30% tax rate. However, firm A has a debt-to-assets ratio of 70% and pays 12% interest on its debt, while Firm B has a 20% debt ratio and pays only 8% interest on its debt. What is the difference between the two firms' ROEs?

Reference no: EM13291146

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