Klein Cosmetics has a profit margin of $5\mathrm{.}0\%,$ a total assets turnover ratio of $1\mathrm{.}5$ times, no debt and therefore an equity multiplier of $1\mathrm{.}0,$ and an ROE of

$7\mathrm{.}5\%.$ The CFO recommends that the firm borrow money, use the funds to buy back stock, and raise the equity multiplier to $2\mathrm{.}0.$ The size of the firm

$($assets$)$ would not change. She thinks that operations would not be affected, but interest on the new debt would lower the profit margin to $4\mathrm{.}5\%.$ This

would probably be a good move, as it would increase the ROE from $7\mathrm{.}5\%$ to $13\mathrm{.}5\%.$

a$.$ True

b$.$ False