Which of the Following Statements Is CORRECT

question 12

Multiple Choice

Which of the following statements is CORRECT?

• A)Suppose a firm's total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10% and its debt increases from 40% of total assets to 60%.Under these conditions, the ROE will increase.
• B)Suppose a firm's total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10% and its debt increases from 40% of total assets to 60%.Without additional information, we cannot tell what will happen to the ROE.
• C)The modified Du Pont equation provides information about how operations affect the ROE, but the equation does not include the effects of debt on the ROE.
• D)Other things held constant, an increase in the debt ratio will result in an increase in the profit margin on sales.
• E)Suppose a firm's total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10%, and its debt increases from 40% of total assets to 60%.Under these conditions, the ROE will decrease.

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Definitions:

Independence

A concept in probability and statistics indicating that two events or variables have no association or influence on each other.

Categorical Variables

Variables that represent categories and can take on a limited, and usually fixed, number of possible values.

Degrees Of Freedom

The number of independent values or quantities which can be assigned to a statistical distribution or in the calculation of a statistic, typically in the context of parameter estimation.

Chi-Square Distribution

A statistical distribution used to describe the distribution of a sum of the squares of independent random variables.