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:

Alfred Dreyfus

A French Jewish artillery officer whose wrongful conviction for treason in 1894 sparked a significant political controversy, known as the Dreyfus Affair.

Treason

The act of betraying one's country, specifically by attempting to overthrow the government or harm or kill its sovereign.

French-Jewish

Pertaining to Jewish individuals or communities residing in France or having French citizenship.

Mayor

The elected head of a city, town, or other municipality, responsible for implementing and enforcing local laws and policies.