Question: 1. Explain the circumstances under which debt financing will increase the return on common stockholders' equity.
2. Under what circumstances will the return on assets and the return on common stockholders' equity be equal?
3. Sauer Corp. has a return on assets of 12%. It plans to issue bonds at 8% and use the cash to repurchase stock. What effect will this have on its debt to assets ratio and on its return on common stockholders' equity?