Return on Equity _______________ When the Expected Rate of Return

question 93

Essay

Return on equity _______________ when the expected rate of return from the acquired assets is greater than the rate of interest on the bonds used to finance the asset acquisition.

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Definitions:

Operating Assets

Assets used in the day-to-day operations of a business, contributing to its ability to generate income.

Contribution Margin

The amount remaining from sales revenue after variable production costs have been deducted, contributing to covering fixed costs.

Controllable Margin

The portion of operating income that can be directly controlled or influenced by managers at certain levels of an organization.

Operating Assets

Assets directly involved in the manufacturing or sale of products or services in the normal course of business.