Problem 4.17 – Which of the following statements is most correct?

Fundamentals of Financial Management, Concise

Brigham and Houston

09th Edition, 10th Edition, and 11th Edition

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Which of the following statements is right?

a. If a firm’s (BEP) is constant and exceeds the interest rate on its debt, adding assets and financing them with debt will raise the firm’s expected ROE.
b. The higher the tax rate, the lower the BEP ratio.
c. The greater the interest rate on a company’s debt, the lower its BEP ratio will be.
d. A higher debt ratio lowers BEP.

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  • Search Terms: (bep) (roe). b. - - as -, -.) a. a about adding all and answering are assets b, basic before bep but c, common conceptual: consider constant constant. c. constant. e. correct? (hint: d debt debt, earning equity exceeds the expected false; financing firm’s following for held held constant. d. higher if interest is its lower most of on other power problem raise rate rate, ratio, return setup solution statement statements tax the the firm’s them things think true which will with work you
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