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:

Forebrain

The anterior part of the brain, including the cerebral hemispheres, thalamus, and hypothalamus, involved in complex behavioral and cognitive processes.

Reward

A positive outcome or reinforcement that follows a desired behavior, encouraging the repetition of that behavior in the future.

Hippocampus

A region of the brain that is associated with memory formation, especially in converting short-term memories to long-term ones, and spatial navigation.

Occipital Lobes

Regions of the brain located at the back of the head, primarily involved in processing visual information.