Which of the following is true of a firm that has no debt in its capital structure?
A) Its return on equity (ROE) will be greater than its return on asset (ROA).
B) Its return on equity (ROE) will be lesser than its return on asset (ROA).
C) Its return on equity (ROE) will be equal to its return on asset (ROA).
D) None of the above.

Question

Quizplus · Accepted Answer

A firm with no debt in its capital structure will only have equity as a source of funding. Therefore, both its ROE and ROA will be the same, as there is no effect of financial leverage (the use of debt) on the returns generated by the assets of the firm.

Which of the Following Is True of a Firm That