Using leverage to expand your business will increase profitability if your a. return on equity equals the interest rate b. return on equity is lower than the interest rate c. return on assets is higher than the interest rate d. return on assets is lower than the interest rate e. none of the above

Which statement is most correct? *     A. Since debt financing raises the firm’s financial risk, increasing debt ratio will increase WACC.   B. Since debt financing is cheaper than equity financing, increasing debt ratio will reduce WACC.   C. Increasing a firm’s debt ratio will typically reduce the marginal costs of both debt and equity financing; however, it still may raise the firm’s WACC.   D. Statements a and c are correct.   E. None of the above

The primary goal of financial management is Select one: a. Increasing the owners wealth b. Reducing risk c. None of these d. Increasing profit

Below is an equation that breaks down the concept of Return on Equity into its components (individual parts). ROE = Net income Sales Net Profit margin Sales Total assets Asset turnover ROA X Total assets Total equity Equity multiplier Using this equation, explain briefly how a company can improve its Return on Assets (ROA), and the impact of this improvement on its Return on Equity (ROE). Is an improvement in ROA that the only way that ROE can increase?