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Question 36There are two firms: Firm U and Firm L. Both firms have $50Mtotal assets and $8M EBIT (earnings before interest and taxes).Firm U is an unleveraged firm without debt. Firm L is a leveragedfirm with 50% of debt and 50% of common equity. The pre-tax cost ofdebt for Firm L is 10%. Both firms have 40% corporate tax rate.Calculate the return on equity (ROE) for firm U.9.6%13.2%16.0%19.2%Question 37Based on the information from Question 36, what’s the return onequity (ROE) for firm L9.6%13.2%16.0%19.2%Question 38Based on the information from Question 36, what’s the differenceof the total dollars paid to all investors in Firm L and FirmU?$3.2 million$4.8 million$5.8 million$1.0 million
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