An increase in financial leverage increases return on


Question: An increase in financial leverage increases return on common equity (if the operating spread is positive), and thus increases residual earnings. The value of equity is based on forecasted residual earnings, yet it is claimed that the value of equity is not affected by a change in financial leverage. How is this seeming paradox explained?

Request for Solution File

Ask an Expert for Answer!!
Finance Basics: An increase in financial leverage increases return on
Reference No:- TGS02286681

Expected delivery within 24 Hours