Consider the Following Leverage Scenarios: If Under Certain Circumstances

question 61

Multiple Choice

Consider the following leverage scenarios: If under certain circumstances, financial leverage enhances performance measured by ROE and EPS, why does shifting from equity into debt have no effect in this case?

• A)The company hasn't repurchased enough shares of stock with borrowed money.
• B)The money the company is earning on its capital is exactly what it costs to borrow.
• C)ROCE is too high.
• D)ROCE is equal to the after tax cost of debt.

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Definitions:

Job Characteristics

Attributes or aspects of a job that influence workers' motivation and satisfaction.

Wage Differentials

The variations in wage rates due to factors such as occupation, experience, education, industry, location, and economic conditions.

Sociological Immobilities

Barriers within a society that prevent or impede individuals’ ability to move up the social or economic ladder.

Compensating Differences

Wage differentials that arise to compensate workers for the desirability or undesirability of a job, based on factors like risk or location.