Question: ROE= ROIC + [ROIC - (1-T)rd]D/E Q2. In class we discussed that ROE is highly sensitive to increases in leverage. In the equation above, however,

ROE= ROIC + [ROIC - (1-T)rd]D/E

Q2. In class we discussed that ROE is highly sensitive to increases in leverage. In the equation above, however, ROE can also be increased by increases in operating efficiencies. Why is ROE sensitive to levels of Debt? (5 points)

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