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ROA Versus ROE

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Effect of adding debt to balance sheet on ROA versus ROE. Why does ROE vary more widely when company acquires debt. Total assets $100,000, net income $10,000 compared to 50% equity financed firm with same income and 5% cost of debt.

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This solution is comprised of a detailed explanation to answer why does ROE vary more widely when company acquires debt.

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ROA Versus ROE
Effect of adding debt to balance sheet on ROA versus ROE.
Why does ROE vary more widely when company acquires debt? Total assets $100,000, net income $10,000 compared to ...

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