For a given level of after-tax income, the higher the level of equity a firm has, then the higher the return on equity its shareholders will earn.

Name: For a given level of after-tax income, the higher the level of equity a firm has, then the higher the return on equity its shareholders will earn.
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Question

Quizplus · Accepted Answer

Higher levels of equity do not automatically guarantee higher returns on equity (ROE); ROE is determined by how effectively a firm uses its equity to generate profits, not just the amount of equity it has.

For a Given Level of After-Tax Income, the Higher the Level