Question: To develop an example that can be presented to CD's management as an illustration, consider two hypothetical firms Firm U with zero debt financing and

To develop an example that can be presented to CD's management

To develop an example that can be presented to CD's management as an illustration, consider two hypothetical firms Firm U with zero debt financing and Firm L with $10,000 of 12% debt. Both firms have $20,000 in invested capital and a 40% federal-plus-state tax rate, and they have the following EBIT probability distri- bution for next year. Probability EBIT $2.000 0.50 3,000 0.25 4,000 0.25 Find ROIC, ROE and TIE of the firms

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