hard · Financial Accounting financial-statement-analysis-ratios
Using the Five-Step DuPont model, if a firm increases its interest-bearing debt while holding EBIT and Assets constant, what is the most likely effect on ROE?
- ROE decreases as the tax burden ratio effectively falls
- ROE always decreases whenever the interest burden ratio dips
- ROE increases if the return on assets exceeds the cost of debt
- ROE remains unchanged since EBIT and the asset turnover ratio stay fixed
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