Firm a Is Very Aggressive in Its Use of Debt

Multiple Choice

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?

A) 8.60%
B) 9.06%
C) 9.53%
D) 10.01%
E) 10.51%