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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Definitions:

Structural Disadvantage

Circumstances where social structures limit opportunities and outcomes for certain groups based on factors like race, class, or gender.

Overlapping Social Problems

Issues that are interconnected and complicate each other, such as poverty, education inequity, and racism.

Ponzi Scheme

A fraudulent investment operation where returns to earlier investors are paid from the capital contributed by new investors, rather than from profit earned.

White-Collar Crime

Non-violent crimes committed by individuals, typically during the course of their occupation, involving deception for financial gain.