Firm a Is Very Aggressive in Its Use of Debt

question 66

Multiple Choice

Firm A is very aggressive in its use of debt to leverage up its earnings for common stockholders,whereas Firm NA is not aggressive and uses no debt.The two firms' operations are identical--they have the same total investor-supplied capital,sales,operating costs,and EBIT.Thus,they differ only in their use of financial leverage (w_d) .Based on the following data,how much higher or lower is A's ROE than that of NA,i.e. ,what is ROE_A - ROE_NA? Do not round your intermediate calculations.
?

• A) 4.90%
• B) 3.71%
• C) 4.58%
• D) 5.54%
• E) 3.76%

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