PPT Slide

• In a stand-alone risk sense, Firm L is much riskier than Firm U.

• L’s business risk is ?ROE(U) = 2.12%.

• L’s stand-alone risk is ?ROE = 4.24%.

• L’s financial risk is ?ROE - ?ROE(U) = 4.24% - 2.12% = 2.12%. (U’s is zero.)

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