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Calculate the return on equity for firm U
Course:- Financial Management
Reference No.:- EM13942968




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There are two firms: firm U and firm L. both firms have $50M total assists and $8M EBIT (earnings before interest and taxes).. Firm U is an unleveraged firm without debt. Firm L ia a leveraged firm with 50% of debt and 50% of common equity. The pre-tax cost of debt for firm L is 10%. Both firms have 40% corporate tax rate. Calculate the return on equity (ROE) for firm U.

A) 9.6%

B) 13.2%

C) 16.0%

 

D) 19.2%




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