General Accounting Firm A and B have debt-total asset ratiosof 35% and 30% and ROA of 12% and11%, respectively. Which firm has agreater ROE?

Step 1: Define Return on equityReturn on equity is a profitability ratio that shows the financial…

Answered: Firm A and B have debt-total asset…

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter12: Fainancial Statement Analysis

Section: Chapter Questions

Problem 24MCQ: When analyzing a companys debt to equity ratio, lithe ratio has a value that is greater than one,...

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Similar questions

When analyzing a companys debt to equity ratio, lithe ratio has a value that is greater than one, then the company has: a. equal amounts of debt and equity. c. less debt than equity. b. more debt than equity. d. none of these.
Which ROE IS GREATER?
What is this firm debt equity ratio?
Company A has a ROA of 8% and a ROE of 12 % . Company B has a ROA of 7% and an ROE of 15%. What does this tell us about the relative levels of debt financing between these two companies? Which company's approach is better?
Solution to this Question
A firm has a debt -to -equity of 0.69 and a market -to- book ratio of 3.0. What is the ratio of the book value of debt to the market value of equity
Which one of the following statements is correct? Multiple Choice If the total debt ratio is greater than .50, then the debt-equity ratio must be less than 1.0. Long-term creditors would prefer the times interest earned ratio be 1.4 rather than 1.5. The debt-equity ratio can be computed as 1 plus the equity multiplier. An equity multiplier of 1.2 means a firm has $1.20 in sales for every $1 in equity. An increase in the depreciation expense will not affect the cash coverage ratio. 1
Please answer multi-choice question in photo.
What is this firm debt equity ratio?
What is this firm debt equity ratio?
You have the following information on a company on which to base your calculations and discussion: Cost of equity capital (rE) = 18.55% Cost of debt (rD) = 7.85% Expected market premium (rM –rF) = 8.35% Risk-free rate (rF) = 5.95% Inflation = 0% Corporate tax rate (TC) = 35% Current long-term and target debt-equity ratio (D:E) = 2:5 a. What are the equity beta (bE) and debt beta (bD) of the firm described above?[Hint: Assume that the above costs of capital have been generated by an appropriate equilibrium model.] b. What is the weighted-average cost of capital (WACC) for this firm at the current debt-equity ratio? c. What would the company’s cost of equity capital become if you unlevered the capital structure (i.e. reduced gearing until there is no debt)
A firm has a return on assets of 7.8 percent and a cost of equity of 11.9 percent. What is the pretax cost of debt if the debt–equity ratio is .72? Ignore taxes.

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Firm A and B have debt-total asset ratios of 35% and 30% and ROA of 12% and 11%, respectively. Which firm has a greater ROE?