What happens to the return on the stockholders’ equity as the amount of debt increases? Why did the rate of interest increase in case C?

Fill in the table using the following information.Assets required for operation: $4,000Case A—firm uses only equity financingCase B—firm uses 30% debt with an 8% interest rate and 70% equityCase C—firm uses 50% debt with a 12% interest rate and 50% equityWhat happens to the return on the stockholders’ equity as the amount of debt increases? Why did the rate of interest increase in case C?   Share this:TwitterFacebook

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