Resulting return on assets for the two firms

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Reference no: EM131318863

You are considering a stock investment in one of two firms (ALLDebt, Inc. and ALLEquity, Inc.) both of which operate in the same industry and have identical operating income of $400,000. AllDebt, Inc. finances its $800,000 in assets with $600,000 in debt (on which it pays 5 percent interest annually) and $200,000 in equity. AllEquity, Inc. finances its $800,000 in assets with no debt and $800,000 inequity. Both firms pay a tax rate of 30 percent on their taxable income. What are the assets funders' (the debt holders and stockholders) resulting return on assets for the two firms?

Reference no: EM131318863

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