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1) Firm A and Firm B are nearly identical firms except for their capital structures. Firm...

1) Firm A and Firm B are nearly identical firms except for their capital structures. Firm A is financed entirely with equity. Firm B finances 50% of its assets with debt, which has an 8% interest rate. Both firms have $1 million of assets, a basic earning power (BEP) ratio of 20%, and a 40% tax rate. Compute the return on equity, ROE, for both firms.

2)Loowie Mining Corp. has $9 million in sales, its ROE is 12%, and its total assets turnover is 3.6x. The company’s debt-equity ratio is 1.0, and it has no preferred stock outstanding. What is its net income?

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