dentexam/boardquery/boardquery j cfm?studentKey 15558528agsimid Intemet tudentex

Question

dentexam/boardquery/boardquery j cfm?studentKey 15558528agsimid Intemet tudentexam/boardquery/boardquery. js.cfm?studentKey-15558528 gsimid- C59559&simid-C933068round-6; NOUIER Comp-XM Exam Points: 10 @2006 Capsim Management Simulations, Inc.® This year Andrews achieved an ROE of 17 5% Suppose the Board of Directors of Andrews mandates that management take measures to increase financial Leverage (-Assets/Equity) next year. Assuming Sales, Profits, and Assets remain the same next year, what effect would you expect this new Leverage policy will have on Andrews ROE? Select 1 Save Answer Andrews ROE wil remain the same Andrews ROE will increase. Andrews ROE will decrease. salescapsim.com

Explanation / Answer

answer is 2

Andrew ROE will increase

because more financial leverage means more debts that means buyback of commonstock which will result in less amount in equity so ROE will increase

ROE = net income/total of equity

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