The firm's EBIT (earnings before interest and taxes) is$5million. The interest rate for its debt is8%, and

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The firm's EBIT (earnings before interest and taxes) is$5million. The interest rate for its debt is8%, and its tax rate is20%.

a. If the firm uses$100million in equity to finance its asset (i.e., debt = 0), what are the firm's ROA (return on asset) and ROE (return on equity)?

b. If the firm uses$50million of debt and$50million of equity to finance its asset, what are the firm's ROA and ROE?

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Survey of Accounting

ISBN: 978-1305961883

8th edition

Authors: Carl S. Warren

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Posted Date: Jan 03, 2021 02:51 AM

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The firm's EBIT (earnings before interest and taxes) is$5million. The interest rate for its debt is8%, and

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