33. There are two firms: Firm U and Firm L. Both firms have $100M total assets and $16M EBIT (earnings before interest and taxes). Firm U is an unleveraged firm without debt. Firm L is a leveraged firm with 50% of debt and 50% of common equity. The pre-tax cost of debt for Firm L is 8%. Both firms have 30% corporate tax rate. Calculate the return on equity (ROE) for firm U
9.6%
11.2%
12.0%
15.2%
34. Based on the information from Question 33, what’s the return on equity (ROE) for firm L
13.2%
16.8%
19.2%
Based on the information from Question 33, what’s the difference of the total dollars paid to all investors in Firm L and Firm U
$1.0 million
$4.8 million
$5.8 million
$1.2 million
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