If the interest rate on debt is higher than the ROA, then by using debt a firm's ROE will ________.
A) decrease
B) increase
C) not change
D) change but in an indeterminable manner

Question

Quizplus · Accepted Answer

If the interest rate on debt is higher than the ROA, it means that the cost of borrowing is greater than the return the company earns on its assets. This would result in a decrease in the ROE, as the higher interest expense would reduce the profit available for shareholders.

If the Interest Rate on Debt Is Higher Than the ROA