A Firm Increases Its Financial Leverage When Its ROA Is

question 37

Multiple Choice

A firm increases its financial leverage when its ROA is greater than the cost of debt. Everything else equal this change will probably increase the firm's ________.
I. beta
II. earnings variability over the business cycle
III. ROE
IV. share price

• A)I and II only
• B)III and IV only
• C)I, III and IV only
• D)I, II and III only

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Definitions:

Operational Control

The process of monitoring and managing day-to-day operations of a business to ensure that organizational goals are met.

Displaced Workers

Individuals who have lost their jobs due to economic changes, technological advancements, or other external factors beyond their control.

Service Risk

The possibility of experiencing losses or failures when delivering or receiving services, due to variability in service quality, delivery, or customer satisfaction.

Proprietary Technology

Unique technology owned by a company, protected by patents or trade secrets, giving them a competitive advantage.