Suppose Firms A and B have the same amount of assets, pay the same interest rate on their debt, have the same basic earning power (BEP), and have the same tax rate. However, Firm A has a higher debt ratio. If BEP is greater than the interest rate on debt, Firm A will have a higher ROE as a result of its higher debt ratio.

Is it true? Explain in detail.

Answer rating: 100% (QA)

Answer Yesit is True Explanation i The easiest way to think about this is to realize that you can bo... View the full answer