Which of the Following Statements Is Incorrect

question 6

Multiple Choice

Which of the following statements is incorrect?

• A)Companies where product costs represent a high percentage of total costs would be expected to have a low gross profit percentage.
• B)A company's current financial ratio should be compared with the same financial ratio for 1) that company in prior years and/or 2) the ratio for the industry in which the company is affiliated.
• C)Gross profit percentages do not vary a great deal among industries.
• D)Profitability evaluation ratios are better at predicting income and solvency than are solvency determination ratios.

---

Definitions:

WACC

Weighted Average Cost of Capital, a measure of the average rate of return a company is expected to pay its securities holders to finance its assets.

Debt Financing

The practice of borrowing funds to finance the business operations or expansion, typically involving loans or issued bonds.

Cost of Equity

The return a firm theoretically pays to its equity investors, i.e., shareholders, to compensate them for the risk they undertake by investing their capital.

Financial Restructuring

The process of reorganizing a company's financial structure, typically in response to financial distress, to improve liquidity and stabilize the business.