Which One of These Statements Correctly Applies to an Unlevered

question 7

Multiple Choice

Which one of these statements correctly applies to an unlevered firm that pays no taxes?

• A) The return on equity exceeds the WACC.
• B) The return on assets equals the return on equity and also equals WACC.
• C) The return on assets equals the return on equity and exceeds WACC.
• D) The return on equity equals WACC and exceeds the return on assets.

---

Definitions:

Income Statement

A financial statement that shows a company's financial performance over a specific period, detailing revenues, expenses, and net income.

Retained Earnings

Retained earnings are the portion of a company's profits that is kept or retained rather than being paid out as dividends to shareholders, often reinvested in the business or used to pay off debt.

Notes Payable

A financial liability representing a written promise to pay a specific sum of money on a specified future date.