Solved: Firms able and baker are identical except for their level, Basic Computer Science

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Firms able and baker are identical except for their level

Firms Able and Baker are identical except for their level of debt and the interest rates they pay on debt. Each has $5 million in assets, $1 Million of EBIT, and has a 40% tax rate. However, firm A has a debt-to-assets ratio of 60% and pays 12% interest on its debt, while Firm B has a 40% debt ratio and pays only 10% interest on its debt. What is the difference between the two firms' ROEs?

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Basic Computer Science: Firms able and baker are identical except for their level

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