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Question 3 (0.2 points) Which of the following is true of a firm that has no debt in its capital structure? Its return on equ
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(Q) Which of the following is true of a firm that has no debt in its capital structure ?

(Ans) Option D - Its return on equity (ROE) will be equal to its return on asset (ROA)

  • A firm that has no debt will have its return on assets (ROA) equal to its return on equity (ROE).The big factor that separates ROE and ROA is financial leverage or debt. The balance sheet's fundamental equation shows how this is true: assets = liabilities + shareholders' equity. This equation tells us that if a company carries no debt, its shareholders' equity and its total assets will be the same. It follows then that their ROE and ROA would also be the same.
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