Question

a. If a firm has a return on equity (ROE) of 15 percent, a financial multiplier of 2, and does not pay any tax, what is its return on invested capital before tax?
b. If a firm has an ROE of 15 percent, a financial cost effect of 0.9, and an pre-tax ROIC of 10 percent, what is its debt-to-equity ratio (total debt divided by owners’ equity)? Assume that the firm does not pay any tax.
c. Under what condition(s) can a firm have, at the same time, a negative pre-tax ROIC and a positive ROE?


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  • CreatedMarch 27, 2015
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