If Two Firms Have the Same Net Profit Margin and the Same

question 69

Essay

If two firms have the same net profit margin and the same asset turnover ratio (i.e., the
same ROA), which one should have the higher ROE--the one that uses more or less
debt? Explain.

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Definitions:

Ideological

Relating to or based on a system of beliefs, values, or ideas that characterizes a particular culture or group.

Contingent

Reliant on another factor and not guaranteed or definitive.

Mandatory Minimum

A type of criminal sentence determined by law that establishes the minimum length of prison time that must be served for certain offenses.

Punitive Policies

Strategies or laws that are intended to punish individuals or entities for misconduct or crimes.