Which of the following is true of a firm that has both debt and equity?
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 that has both debt and equity will have a higher return on equity (ROE) than its return on asset (ROA) because part of the profits will have already paid the interest on the debt, leaving a larger percentage of profits for equity holders.

Which of the Following Is True of a Firm That