How is this seeming paradox explained

Assignment Help Finance Basics

Reference no: EM131491117

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?

Reference no: EM131491117

Questions Cloud

Analyze communication issue that might arise in organization : Analyze communications issues that might arise in an organization hiring employees for their first job based on discussion from your learning team.

Belief systems of german national socialism : In what ways did the belief systems of German National Socialism and Soviet Communism differ? What difference if any did these belief systems make in practice?

Why is informed consent necessary for ethical research : Describe one ethical issue related to research. Why is informed consent necessary for ethical research

Significance for moders legal systems of the existence : Describe the significance for moders legal systems of the existence of the code of hammurabi? How do the poilitical and legal principles.

How is this seeming paradox explained : An increase in financial leverage increases return on common equity (if the operating spread is positive), and thus increases residual earnings.

Presidential campaign of jesse jackson : What occurred during the presidential campaign of Jesse Jackson? What other black political leaders were important prior to Barack Obama's entrance.

Similarities of greek and roman art : What were some similarities of Greek and Roman Art? Which Art did you find more interesting and why?

What is your assessment of the profitability of panera : Based on component percentage analysis and ratio analysis, what is your assessment of the profitability of Panera in the three most recent years?

Discuss the levered price-to-book ratios : Noting the large amount of stock repurchases in 2009-2010, an equity strategist at a leading Wall Street firm predicted that earnings per share would increase.

User Account

All Pages