Firm a Is Very Aggressive in Its Use of Debt

question 54

Multiple Choice

Firm A is very aggressive in its use of debt to leverage up its earnings for common stockholders,whereas Firm NA is not aggressive and uses no debt.The two firms' operations are identical⎯they have the same total investor-supplied capital,sales,operating costs,and EBIT.Thus,they differ only in their use of financial leverage (w_d) .Based on the following data,how much higher or lower is A's ROE than that of NA,i.e.,what is ROE_A − ROE_NA?

• A)8.60%
• B)9.06%
• C)9.53%
• D)10.01%
• E)10.51%

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Definitions:

Direct Marketing

A type of advertising strategy that involves direct communication with consumers through various channels, bypassing intermediaries.

Promotional Mix

The combination of marketing communication tools a company uses to pursue its marketing objectives, such as advertising, sales promotion, public relations, personal selling, and direct marketing.

Promotion Decision Process

A series of steps a company undertakes to conceive, plan, and execute promotional activities to market its products or services.

Steps

Sequential actions or procedures followed to achieve a particular end.