If a Firm Has a Positive Tax Rate and a Positive

question 8

Multiple Choice

If a firm has a positive tax rate and a positive operating ROA, and the interest rate on debt is the same as the operating ROA, then operating ROA will be ________.

• A) greater than zero, but it is impossible to determine how operating ROA will compare to ROE
• B) equal to ROE
• C) greater than ROE
• D) less than ROE

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Definitions:

Fiduciary Duty

A legal obligation of one party to act in the best interest of another when entrusted with care of property, finances, or other responsibilities.

Debt Contracts

A legal agreement specifying the conditions under which money is borrowed and must be repaid by the borrower.

Monitoring Costs

Expenses related to overseeing and managing investments or ensuring compliance within financial agreements.

Management Remuneration

Compensation and other forms of payment provided to executives and managers of a company for their service and performance.