Which of the Following Statements Is CORRECT

question 37

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) The numerator used in the TIE ratio is earnings before taxes (EBT). EBT is used because interest is paid with post-tax dollars, so the firm's ability to pay current interest is affected by taxes.
• E) All else equal, increasing the debt ratio will increase the ROA.

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Definitions:

Social

Pertaining to society, or the organized interaction among people, often involving cooperative and collaborative behavior.

Genetic Origins

The hereditary aspects and biological background that influence an individual's physical and behavioral traits.

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A historical term describing a psychological condition of mania without delusion, often related to what is now understood as bipolar disorder or specific forms of mania.

DSM-5

The 5th edition of the Diagnostic and Statistical Manual of Mental Disorders, a standardized classification system for diagnosing mental disorders used by mental health professionals in the U.S.