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Typically, will the use of financial leverage make the probability distribution of ROIC steeper...

Question:

Typically, will the use of financial leverage make the probability distribution of ROIC steeper or flatter?

Return on Invested Capital:

Return on invested capital (ROIC) is the amount of return a company makes above the average cost it pays for its debt and equity capital. ROIC is computed to assess the value of a company.

Answer and Explanation:

Typically, the use of financial leverage will make the probability of ROIC (return on invested capital) flatter. Having a higher financial leverage means incurring more debts; hence, resulting to more interest expense. This will cause a decrease to net income, subsequently making the return on invested capital flatter.


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Financial Leverage: Definition, Formula & Calculation

from Intro to Business: Help and Review

Chapter 3 / Lesson 47
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