Firm ABC and Firm XYZ Both Have ROAs of 12%;

question 67

Multiple Choice

Firm ABC and Firm XYZ both have ROAs of 12%; however, Firm ABC has a much higher ROE than Firm XYZ. Which of the following do we know to be true? Relative to Firm ABC, Firm XYZ has a lower:

• A) debt ratio.
• B) total asset turnover ratio.
• C) current ratio.
• D) net profit margin.

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Definitions:

Implied Value

The estimated value of an asset or investment derived from models or market prices rather than direct measurement.

Annual Coupon

The annual interest payment paid to bondholders, usually expressed as a percentage of the bond's face value.

Convertible Issues

Financial instruments such as bonds or preferred stocks that can be converted into a predetermined number of common stocks.

Conversion Value

The monetary worth at which a convertible security (like convertible bonds) can be converted into a specified number of shares of common stock.