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

To develop an example that can be presented to CDs management as an illustration, consider two small 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 25% federal-plus-state tax rate, and they have the following EBIT probability distribution for next year: Probability EBIT 0.25 $2,000 0.50 3,000 0.25 4,000 1. Complete the partial income statements and the firms ratios in Table IC 14.1.

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