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How does the value of the firm will increase with leverage

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Question: XCV Inc., which manufactures automobile parts for assembly, is considering the costs and the benefits of leverage. The CFO notes that the return on equity of the firm, which is only 12.75% now, based upon the current policy of no leverage, could be increased substantially by borrowing money. Is this true? Does it follow that the value of the firm will increase with leverage? Why or why not?

Reference no: EM131690190

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