medium · Principles of Finance financial-statements-markets-wc

How does the 'Interest Burden' ratio in the five-way DuPont decomposition typically change following a leveraged recapitalization?

1. It increases because the firm's pre-tax profit margin improves with higher debt.
2. It increases because the higher leverage amplifies the return on equity.
3. It remains constant because the tax shield offsets the higher interest costs.
4. It decreases because interest expense as a portion of EBIT increases.

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