Multiple Choice
ROCE will exceed ROA whenever ROA exceeds the after-tax cost of borrowing plus any dividends required for preferred shareholders.Which of the following is/are true?
A) The bond holders earn a higher return, but they undertook more risk in their investment.
B) The preferred shareholders earn a lower return, but they undertook more risk than the common shareholders in their investment.
C) The common shareholders earn a higher return, but they undertook more risk in their investment.
D) Using lower-cost borrowed funds and then earning a rate of return on those funds higher than their cost increases the return to the common shareholders.
E) Choices c and d.
Correct Answer:
Verified
Correct Answer:
Verified
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