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.

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Definitions:

Risk Analysis

The process of identifying, assessing, and prioritizing risks to the project and planning for potential mitigation.

Industry Type

Classifications of various sectors of the economy based on the primary activity they engage in, such as manufacturing, services, or technology.

Risk Averse

A trait or behavior where an individual or entity prefers to avoid risk rather than facing uncertainty, often opting for safer alternatives.

Risk Checklists

Tools or lists used to identify, assess, and manage potential risks in a project or operation.