Firm 1 has a capital structure with 20% debt and 80% equity. Firm 2s capital...
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Accounting
Firm 1 has a capital structure with 20% debt and 80% equity. Firm 2s capital structure consists of 50% debt and 50% equity. Both firms pay 7% annual interest on their debt. Finally suppose both firms have invested in assets worth $100 million. Calculate the return on equity (ROE) for each firm assuming the following: a. The return on assets is 3% Firm 1 b. The return on assets is 7% c. The return on assets is 11% What general pattern do you observe?
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