Because increased leverage imposes risk on a firm, it will reduce return on equity.

Name: Because increased leverage imposes risk on a firm, it will reduce return on equity.
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Increased leverage can actually increase return on equity (ROE) because it allows a firm to finance more investments with debt rather than equity, potentially leading to higher profits relative to the equity. However, it also increases financial risk.

Because Increased Leverage Imposes Risk on a Firm, It Will