For firm XYZ in the previous problem, suppose the firm’s business risk
For firm XYZ in the previous problem, suppose the firm’s business risk is defined in terms of (ROA), and (ROA)=19%. Assuming that the debt is default-free, compute (ROE).
(ROE)
a. 19.000%
b. 24.325%
c. 30.875%
d. 49.400%
FORMULA: (ROE)= (ROA)[TA/BEQ]
ANSWER
C
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