Using the Formula ROE = [NOI - RD] /Equity,the Term

question 7

Multiple Choice

Using the formula ROE = [NOI - rD] /Equity,the term positive leverage implies that the return On equity is ________________ than the return on assets if the cost of debt "r" is ___________ than ROA where ROA = NOI/EQUITY.

• A) greater,less
• B) less,greater
• C) minimal,maximized
• D) a and b
• E) a and c

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Definitions:

Basic Formula

Typically refers to the accounting equation: Assets = Liabilities + Equity.

Calculating Interest

The process of determining the monetary charge for borrowing money or the return on investment for savings, typically through a predetermined formula.

Note Receivable

A written promise for the payment of a specified amount of money at a set time to the holder or bearer of the note.

Accounts Receivable

Represents money owed to a business by its customers for goods or services delivered but not yet paid for, considered a current asset on the balance sheet.