Firms HD and LD are identical except for their level of debt and the interest rates they pay on debt ⎯ HD has more debt and pays a higher interest rate on that debt. Based on the data given below, what is the difference between the two firms' ROEs? Applicable to Both Firms        Firm HD        Firm LD Assets    1,100    Debt Ratio    60%    Debt Ratio    30% EBIT    275    Interest Rate    14%    Interest Rate    12% Tax Rate    25%                 Group of answer choices

Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter17: Dynamic Capital Structures And Corporate Valuation
Section: Chapter Questions
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Firms HD and LD are identical except for their level of debt and the interest rates they pay on debt ⎯ HD has more debt and pays a higher interest rate on that debt. Based on the data given below, what is the difference between the two firms' ROEs?

Applicable to Both Firms        Firm HD        Firm LD
Assets    1,100    Debt Ratio    60%    Debt Ratio    30%
EBIT    275    Interest Rate    14%    Interest Rate    12%
Tax Rate    25%                
Group of answer choices 

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