Two Firms That Have the Same Financial Leverage Must Also

question 7

True/False

Two firms that have the same financial leverage must also have the same ROE,because both financial leverage and ROE measure the risk associated with equity financing.

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Definitions:

Market Rate of Return

The average rate of return that investors expect to earn in the market on an investment, reflecting the risk and liquidity of the asset.

Annual Dividend

The total payment received from a stock or other investment security over the span of a year, often distributed quarterly by the issuing company.

Dividend Increase

An action by a company to raise the amount of dividends paid to its shareholders.

Dividend Growth Rate

The annualized percentage rate of growth that a company's dividend undergoes over a period of time.