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 and both pay out all their earnings as dividends. There's a 0% corporate tax rate. Use the company facts from the previous problems when needed:

1)   What return on equity would you expect to receive if you were to buy Alpha Tech shares with your $60,000? 

 

 

 

 

 

 

2)   What return on equity would you expect to 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? 

Answer rating: 100% (QA)

To calculate the return on equity for Alpha Tech we need to divide the annual dividend by the equity ... View the full answer