Suppose Firms a and B Have the Same Amount of Assets

question 93

True/False

Suppose Firms A and B have the same amount of assets, pay the same interest rate on their debt, have the same basic earning power (BEP), and have the same tax rate.However, Firm A has a higher debt ratio.If BEP is greater than the interest rate on debt, Firm A will have a higher ROE as a result of its higher debt ratio.

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Definitions:

Deprivation Needs

Basic human needs that must be fulfilled to prevent discomfort or harm, such as food, water, and sleep; derived from the concept in Maslow's hierarchy of needs that when these are unmet, individuals are motivated to satisfy them.

Self-Actualization

The actualization or achievement of one's skills and possibilities, seen as a motivation or necessity found in every person.

Lower-Level Needs

Basic physiological and safety needs in Maslow's hierarchy, which must be satisfied before higher-level needs for love, esteem, and self-actualization can be addressed.

Self-Actualization

A concept in humanistic psychology referring to the realization or fulfillment of one's talents and potentialities, considered as a drive or need present in everyone.