Which of the Following Statements Is CORRECT

question 32

Multiple Choice

Which of the following statements is CORRECT?

• A)The use of debt financing will tend to lower the basic earning power ratio, other things held constant.
• B)A firm that employs financial leverage will have a higher equity multiplier than an otherwise identical firm that has no debt in its capital structure.
• C)If two firms have identical sales, interest rates paid, operating costs, and assets, but differ in the way they are financed, the firm with less debt will generally have the higher expected ROE.
• D)Holding bonds is better than holding stock for investors because income from bonds is taxed on a more favorable basis than income from stock.
• E)All else equal, increasing the debt ratio will increase the ROA.

---

Definitions:

Sunk Costs

Past expenditures that cannot be recovered and should not affect current or future business decisions.

Other People's Resources (OPR)

refers to the strategic use of resources owned by others, such as time, money, or knowledge, to achieve one's objectives.

Corporate Social Responsibility (CSR) Committee

A group within an organization dedicated to overseeing the company's efforts and strategies in being socially accountable to its stakeholders and the public.

Legal Work

Professional tasks involving the application of law or legal procedures by qualified individuals like lawyers or paralegals.