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Unformatted text preview: ROE goes up when most other companies ROEs decline (that is, its beta is negative), its apparent riskiness would be reduced. c. Firm As ROE = BEP = 5.5%. Therefore, Firm A uses no financial leverage and has no financial risk. Firm B and Firm C have ROE > BEP , and hence both use leverage. Firm C uses the most leverage because it has the highest ROE- BEP = measure of financial risk. However, Firm Cs stockholders also have the highest expected ROE....
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.
- Spring '08