Answer: c. Andrews ROE will increase.
Explanation:
The Board of Directors has ordered that measures be put in place to increase financial Leverage which is Assets/Equity. That means that there are 2 ways this is to be done based on the formula which would be to either; increase Assets or Decrease Equity.
It is assumed that Sales, Profits, and Assets remain the same next year so the measures will therefore involve decreasing Equity.
Return on Equity = Net income/Shareholder equity.
Profits are assumed to remain the same, however, as per the Board's directives, Equity will fall. This will mean that Net Income will be divided by a lower figure which will lead to a higher ROE.
