Problem
Calculate the basic earning power (bep) and return on equity (roe) for a firm with 100% equity, and bep and roe for a firm with 50% equity and 50% debt according to the following data. Also, what are the expected roe's and standard deviation of roe's for both unlevered and levered firms? Interest rate 6%, and tax 40%. two firms are identical except for the capital structure. assets $50,000 ebit $2,000 in recession (30% chance of occurring) $3,000 in normal case (40%) and $4,000 in boom (30%)