Answered step by step
Verified Expert Solution
Question
1 Approved Answer
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)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started