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Explain riskiness of financial leverage on return on equity

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Reference no: EM132844023

Samson Securities has got total assets of 2 Billion US dollar and a return on assets (ROA) of 1%. It is considering maintaining an equity base of 4% of its assets.

Problem 1: If the rest of the funding is with borrowed money, explain the riskiness of financial leverage on its return on equity (ROE)& calculate it.

Problem 2: Would the riskiness be less or more if the equity base of 8% needs to be maintained under the law of a particular country?

Reference no: EM132844023

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