A Firm Increases Its Financial Leverage When Its ROA Is

question 48

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. Stock 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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