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Firms A & B are similar firms in the same industry. Firm A and B have the same profit margin and total asset turnover when compared.

Firms A & B are similar firms in the same industry. Firm A and B have the same profit margin and total asset turnover when compared. However, Firm A's capital structure is 50% debt and Firm B's capital structure is 66% debt. Which firm, given the above conditions will experience the highest return on equity (ROE) ?



a. A

b. B

c. Can't tell from information given.
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