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:

Demand

The quantity of a good or service that consumers are willing and able to purchase at various prices during a given time period.

Equilibrium

Equilibrium in economics is the point where supply equals demand for a product, resulting in stable prices and volume of sales.

Efficient Portfolio

Provide the highest expected return for any degree of risk. The efficient portfolio is that which provides the lowest degree of risk for any expected return.

Expected Return

Expected Return is the anticipated profit or loss a portfolio generates over a specific period, based on historical or forecasted performance.