If the Interest Rate on Debt Is Lower Than ROA

question 40

Multiple Choice

If the interest rate on debt is lower than ROA, then a firm will __________ by increasing the use of debt in the capital structure.

• A) increase the ROE
• B) not change the ROE
• C) decrease the ROE
• D) change the ROE in an indeterminable manner

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Definitions:

Carrying Capacity

The largest number of individuals of a species that can be supported indefinitely by an environment, considering the availability of essential resources such as food, living space, water, and other requirements.

Unlimited Economic Growth

The concept that an economy can grow indefinitely without encountering significant environmental or resource limitations.

Economists

Professionals who study the production, distribution, and consumption of goods and services, focusing on how economies work and how economic policies affect societal well-being.

Ecologically Sustainable Development

A process of developing in a manner that does not deplete natural resources, ensuring environmental health and resilience for future generations.