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Questions
Questions

COMM_V 320 DD4 2025W1 Part A Final Exam December 15, 2025 Part A Multiple Choice - 30 minutes

Single choice

When a company's ROE is greater than its ROA for a given time-period, it could be that 

Options
A.the company has no debt
B.the level of debt has no impact on the ROA
C.the company could borrow at an after-tax rate that was less than the rate earned by investing in assets.
D.the company could borrow at an after-tax rate that was higher than the rate earned by investing in assets
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Standard Answer
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Approach Analysis
When evaluating why a company’s ROE might exceed its ROA in a given period, the role of leverage comes into play. Option 1: 'the company has no debt' — If a firm had no debt, ROE and ROA would be driven by the same asset returns (ROE would equal ROA, after accounting for any equity structure). The statement implying no debt would not explain why ROE exceeds ROA, so this option is inconsiste......Login to view full explanation

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