If a firm has a positive tax rate, a positive ROA, and the interest rate on debt is the same as ROA, then ROA will be
A)greater than the ROE.
B)equal to the ROE.
C)less than the ROE.
D)greater than zero, but it is impossible to determine how ROA will compare to ROE.

Question

Quizplus · Accepted Answer

ROA = (Net Income + Interest Expense) / Total AssetsROE = Net Income / EquityIf ROA > 0, ROE > 0, and the interest rate on debt = ROA, then Net Income + Interest Expense > Net Income. Therefore, ROA > ROE.

If a Firm Has a Positive Tax Rate, a Positive