Alpha Tech and Beta Corp are identical companies except for their capital structures. Alpha has no debt on its balance sheet and 10,000 shares outstanding, each worth $100. Beta managed to raise $400,000 in debt at a cost of 8% (perpetual debt). Theres a 0% corporate tax rate.

You have $60,000 and are looking to invest. Both Alpha and Beta have caught your eye. Both firms have EBIT of $100,000 in perpetuity. Theres a 0% corporate tax rate. Use the company facts from the previous problems when needed:

1. What return on equity would you receive if you were to buy Alpha Tech shares with your $60,000?
2. What return on equity would you receive if you were to buy Beta Corp shares with your $60,000? (Assume that Beta has perpetual debt).
3. Which return is higher and why?