Which of the Following Statements Is Most Correct

question 88

Multiple Choice

Which of the following statements is most correct?

• A) If Firms A and B have the same level of earnings per share, and the same market to book ratio, they must have the same price earnings ratio.
• B) Firms A and B have the same level of net income, taxes paid, and total assets. If Firm A has a higher interest expense, its basic earnings power ratio (BEP) must be greater than that of Firm B.
• C) Firms A and B have the same level of net income. If Firm A has a higher interest expense, its return on equity (ROE) must be greater than that of Firm B.
• D) All of the answers above are correct.
• E) None of the answers above is correct.

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Definitions:

Federal Funds Rate

The interest rate at which depository institutions lend reserve balances to other depository institutions overnight, a key economic policy tool used by the Federal Reserve.

Economic Growth

An increase in the production of goods and services in an economy over a period, reflecting a rise in national income and standard of living.

Tax Rate

A tax rate is the percentage at which an individual or corporation is taxed.

Fiscal Policy

Government policies related to taxation and public spending with the aim of influencing economic conditions, including levels of employment, inflation, and economic growth.