This year Andrews achieved an ROE of 18.4%.

This year Andrews achieved an ROE of 18.4%. Suppose the Board of Directors of Andrews mandates that management take measures to decrease financial Leverage (Assets/Equity) next year. Assuming Sales, Profits, and Assets remain the same next year, what effect would you expect this new Leverage policy will have on Andrews’s ROE?

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•  Andrews ROE will decrease

•  Andrews ROE will remain the same

Andrews ROE will increase