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Assume a financial advisor has suggested to management that it could increase ROE by increasing leverage to D/V = .75 and E/V = .25. Interest
Assume a financial advisor has suggested to management that it could increase ROE by increasing leverage to D/V = .75 and E/V = .25. Interest expense would increase to approximately $2 million and operating earnings would not be materially affected. This is a critical thinking question. Evaluate and carefully explain whether you think this is a good or bad idea. Discuss the potential pros and cons of such a suggestion? Be sure to include appropriate calculations to support your answer.
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