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Problem:

Firms R and S are similar firms in the same industry. Firms R and S have the same profit margin and total asset turnover when compared. However, Firm R's capital structure is 60% debt, 40% equity, and Firm S's capital structure is 30% debt, 70% equity.

Required:

Question: Given the above conditions, which firm will experience the highest return on equity (ROE)? Why?

Note: Provide support for your rationale.

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M91163383

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