conceptual return on equity which of the following statements is most correct a if a 1549755

CONCEPTUAL: RETURN ON EQUITY Which of the following statements is most correct?

a. If a firm’s expected basic earning power (BEP) is constant for all of its assets and exceeds the interest rate on its debt, adding assets and financing them with debt will raise the firm’s expected return on common equity (ROE).

b. The higher a firm’s tax rate, the lower its BEP ratio, other things held constant.

c. The higher the interest rate on a firm’s debt, the lower its BEP ratio, other things held constant.

d. The higher a firm’s debt ratio, the lower its BEP ratio, other things held constant.

e. Statement a is false; but statements b, c, and d are true.