Which of the Following Statements Is CORRECT

question 55

Multiple Choice

Which of the following statements is CORRECT?

• A) Suppose a firm's total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10% and its debt increases from 40% of total assets to 60%. Under these conditions, the ROE will increase.
• B) Suppose a firm's total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10% and its debt increases from 40% of total assets to 60%. Without additional information, we cannot tell what will happen to the ROE.
• C) The DuPont equation provides information about how operations affect the ROE, but the equation does not include the effects of debt on the ROE.
• D) Other things held constant, an increase in the debt ratio will result in an increase in the profit margin.
• E) Suppose a firm's total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10%, and its debt increases from 40% of total assets to 60%. Under these conditions, the ROE will decrease.

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Definitions:

Time Variance

This refers to the difference between the expected time to complete a task and the actual time taken.

Actual Direct Labor Hours

The real number of labor hours spent by workers directly involved in the production of goods or services.

Standard Hours

The prescribed amount of time that work is expected to take under normal conditions, often used for planning and efficiency analysis.

Direct Materials Quantity Variance

A measure used to evaluate the efficiency of the quantity of materials used in production, calculated as the difference between the standard cost of direct materials and the actual cost of direct materials used.