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Equity Investments Q177

177Azure LLC has sold off 10% of its total assets, which were unproductive since the past three years, and used the proceeds to buy back its common shares. Holding other factors constant,the most likely effect will be a:
  • Option : A
  • Explanation : Selling unproductive assets and using the proceeds from the sale to buy back shares reduces the total assets. Holding sales constant the decrease in assets would improve the asset turnover. Buying back shares increases the firm’s financial leverage. Both the increase in asset turnover and financial leverage will lead to a higher return on equity.
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