Question
Consider a simple balance sheet: TA=total assets (all operating); TD=total debt; TE=total equity; TA=TD + TE. Let ROE=NI/TE; ROA=NOI/TA;EBIT(1-Tc)=NOI ; r(1-Tc)is the after-ax cost of
Consider a simple balance sheet: TA=total assets (all operating); TD=total debt; TE=total equity; TA=TD + TE. Let ROE=NI/TE; ROA=NOI/TA;EBIT(1-Tc)=NOI ; r(1-Tc)is the after-ax cost of borrowing. Show (mathematically) that ROE=ROA+[ROA-r(1-Tc)]TD/TE. (4 marks)
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Money Banking And Financial Markets
Authors: Stephen Cecchetti
2nd Edition
0073523097, 9780073523095
