Under what conditions would a firm’s return on common equity (ROCE) be equal to its return on net operating assets
Answer/comment on each of the following items:
1. Under what conditions would a firm’s return on common equity (ROCE) be equal to its return on net operating assets (RNOA)?
2. Under what conditions would a firm’s return on net operating assets (RNOA) be equal to its return on operating assets (ROOA)?)
3. Explain why borrowing might lever up the return on common equity.
4. A firm should always purchase inventory and supplies on credit rather than paying cash. Correct?
……………………Answer preview……………………..
Under what conditions would a firm’s return on common equity (ROCE) be equal to its return on net operating assets (RNOA)?
The two rates of return will be the same in either of the following conditions:
(a) The SPREAD is zero, that is, return on net operating assets equals net borrowing cost.
(b) Financial leverage (FLEV) is zero, that is, financial assets equal financial obligations……………………………….
APA
562 words
