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


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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