The Dupont equation states that:

Return on Equity = (Net Income/Total Assets) x (Total Assets /Equity)

Return on Equity = ROE.

Management of XYZ Company observes that its direct competition has a higher ROE. Management of XYZ decides issue additional shares of common stock and to invest the proceeds in treasury bills for the next ten years. This decision very likely will lead to an increase in ROE.

True

False

The Dupont equation states that:

Return on Equity = (Net Income/Total Assets) x (Total Assets /Equity)

Return on Equity = ROE.

Management of the XYZ company observes that its direct competition has a higher ROE. Management of XYZ decides to replace debt with equity financing. This decision will result in a higher ROE.

True

False