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:

Emotion of Fear

A basic human emotion that involves a physiological and psychological response to perceived threats or danger.

Infants

Young children in the earliest stage of life, typically defined as being from birth to one year of age.

Seven Months

A period of time equal to approximately 210 days or seven calendar months.

Amygdala

A region of the brain involved in processing emotions, fear responses, and reward.