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:

Integrity

The quality of being honest and having strong moral principles; moral uprightness.

Laissez-Faire Leaders

Leadership style characterized by minimal supervision, where leaders primarily let their team members make decisions and set their own goals.

Delegating Authority

The process of assigning decision-making power and responsibilities to others while retaining ultimate accountability.

Building Trust

The process of establishing confidence in one's honesty, integrity, and reliability within personal or professional relationships.