Firm A is very aggressive in its use of debt to leverage up its earnings for common stockholders,whereas Firm NA is not aggressive and uses no debt.The two firms' operations are identical--they have the same total investor-supplied capital,sales,operating costs,and EBIT.Thus,they differ only in their use of financial leverage (w_d) .Based on the following data,how much higher or lower is A's ROE than that of NA,i.e. ,what is ROE_A - ROE_NA? Do not round your intermediate calculations.
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Question

Firm A is very aggressive in its use of debt to leverage up its earnings for common stockholders,whereas Firm NA is not aggressive and uses no debt.The two firms' operations are identical--they have the same total investor-supplied capital,sales,operating costs,and EBIT.Thus,they differ only in their use of financial leverage (w_d) .Based on the following data,how much higher or lower is A's ROE than that of NA,i.e. ,what is ROE_A - ROE_NA? Do not round your intermediate calculations.

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Quizplus · Accepted Answer

? 11ea856c_8b82_ab6d_9aec_31001698fcdb_TB1222_00 ? 11ea856c_8b82_ab6e_9aec_4f3963be759c_TB1222_00 ?
Difference in ROEs = 4.58%

Firm a Is Very Aggressive in Its Use of Debt