If the Interest Rate on Debt Is Higher Than ROA

question 88

Multiple Choice

If the interest rate on debt is higher than ROA, 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:

Trust

A firm belief in the reliability, integrity, or ability of someone or something, fundamental for building relationships and ensuring cooperative behavior.

Autonomy

The right or condition of self-governance, or making one's own decisions without interference from others.

Choices

The act of making a decision or selection among different options or possibilities in various contexts.

Hypothetical Imperative

A command of reason that applies conditionally, suggesting an action to achieve a specific end, as opposed to a categorical imperative which is unconditional.