Nodebt is a company with total assets of 100m and pays


a. Nodebt is a company with total assets of $100M and pays corporate taxes at the rate of 30%. Nodebt generates EBITs of $5M, $10M, $15M in a bad year, a normal year, and a good year respectively. Calculate the rate of return on equity of Nodebt in the three scenarios.

b. Some debt is an identical company except that $50M of its $100M total assets is financed with debt bearing an interest rate of 8%. Calculate the rate of return on equity of Some debt in the three scenarios of earnings.

c. Which company among the two has riskier equity to be invested in?

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Financial Management: Nodebt is a company with total assets of 100m and pays
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