medium · Principles of Finance financial-statements-markets-wc
Following a large share issuance, a company's Net Income remains the same as the previous year.
What is the most likely impact on the firm's Return on Equity (ROE)?
- The ROE will increase because the firm's interest expense will decrease as it uses the proceeds to pay down debt.
- The ROE will decrease because the equity base (the denominator) has increased while Net Income remains flat.
- The ROE will increase because the firm has more capital to deploy for future projects.
- The ROE will remain constant because share issuance is a financing decision, not an operating one.
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