If Alex Corporation takes out a bank loan to purchase a machine used in production and everything else stays the same,its equity multiplier will ________,and its ROE will ________.
A)increase;increase
B)decrease;decrease
C)increase;decrease
D)decrease;increase

Question

Quizplus · Accepted Answer

Taking out a bank loan increases the company's liabilities, which increases the equity multiplier (Assets/Equity). If the loan is used effectively to generate more income, the ROE (Return on Equity) can also increase due to higher net income.

If Alex Corporation Takes Out a Bank Loan to Purchase