If the Interest Rate on Debt Is Higher Than ROA

question 52

Multiple Choice

If the interest rate on debt is higher than ROA, a firm will __________ by increasing the use of debt in the capital structure.

• A)increase the ROE
• B)not change the ROE
• C)decrease the ROE
• D)change the ROE in an indeterminable manner If ROA is less than the interest rate, then ROE will decline by an amount that depends on the debt to equity ratio.

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Definitions:

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