Question: Company A uses the leverage to boost its return on equity to 3 0 % this year, nearly 1 0 % higher than the industry

Company A uses the leverage to boost its return on equity to 30% this year, nearly 10%
higher than the industry average. However, the firm's stock price decreases relative to its
industry counterparts. Why might this occur?
The increased debt resulted in interest payments that made HighLev's operating income drop even
though return on equity increased.
Stockholders want the firm to use more leverage to push up return on equity.
The market perceives the increase in leverage as risky.
Markets are inefficient and fail to recognize the leverage.
Company A uses the leverage to boost its return on equity

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