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Ware Company Has a Return on Assets of 15% and a Return

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Essay

Ware Company has a return on assets of 15% and a return on common stockholders' equity of 10%.John Ware,the president of the company,has asked you to explain the reason for this difference.What causes the difference? How is the concept of financial leverage involved?


Definitions:

Principal

The original sum of money borrowed in a loan or invested, distinct from interest or profit generated from it.

Government

An organized group of individuals that has the authority to rule and govern a specific geographic area or country, establishing laws and policies.

Election Process

The sequence of activities involving the submission of candidate names, campaigning, voting, and ultimately determining a winner in a democratic system.

Incentives

Rewards or penalties that motivate individuals or entities to behave in certain ways.

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