If the corporate income tax rate becomes 0% then greater leverage ratios will lead to an increase in ROE.Group of answer choicesTrueFalse
Question
Solution 1
True.
The Return on Equity (ROE) is calculated as Net Income/Shareholder's Equity. If a company increases its leverage (i.e., borrows more), it can use this additional capital to generate more net income, which would increase the ROE.
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