The total value of assets in firms ALPHA and BETA is 1 million euros. While ALPHA is completely financed with owners' eq
Posted: Tue Nov 16, 2021 8:21 am
The total value of assets in firms ALPHA and BETA is 1 million
euros. While ALPHA is completely financed with owners' equity, BETA
finances 50% of its assets with debt, which has an average interest
rate of 10%. Earnings before interest and taxes amount to 0.2
million euros in both firms. According to this information:
a) Calculate ROA and ROE for both firms.
b) Why is ROE higher in BETA than in ALPHA?
euros. While ALPHA is completely financed with owners' equity, BETA
finances 50% of its assets with debt, which has an average interest
rate of 10%. Earnings before interest and taxes amount to 0.2
million euros in both firms. According to this information:
a) Calculate ROA and ROE for both firms.
b) Why is ROE higher in BETA than in ALPHA?