Using the formula ROE = [NOI - rD] /Equity,the term positive leverage implies that the return On equity is ________________ than the return on assets if the cost of debt "r" is ___________ than ROA where ROA = NOI/EQUITY.

Question

Quizplus · Accepted Answer

Positive leverage means that the return on equity is higher than the return on assets. This can only happen if the cost of debt "r" is lower than the return on assets (ROA), as per the given formula ROE = [NOI - rD] /Equity. Therefore, option A is correct where ROE is greater and the cost of debt "r" is less than ROA.

Using the Formula ROE = [NOI - RD] /Equity,the Term