The nancial structure of a rm refers to the way the rms

Chapter 13, Problem 13.24

(choose chapter or problem)

The financial structure of a firm refers to the way the firm’s assets are divided into equity and debt, and the financial leverage refers to the percentage of assets financed by debt. In the paper The Effect of Financial Leverage on Return, Tai Ma of Virginia Tech claims that financial leverage can be used to increase the rate of return on equity. To say it another way, stockholders can receive higher returns on equity with the same amount of investment through the use of financial leverage. The following data show the rates of return on equity using 3 different levels of financial leverage and a control level (zero debt) for 24 randomly selected firms:

(a) Perform the analysis of variance at the 0.05 level of significance.

(b) Use Dunnett’s test at the 0.01 level of significance to determine whether the mean rates of return on equity are higher at the low, medium, and high levels of financial leverage than at the control level.