Which of the Following Statements Is CORRECT

question 3

Multiple Choice

Which of the following statements is CORRECT?

• A) All else equal, increasing the debt ratio will increase the ROA.
• B) The use of debt financing will tend to lower the basic earning power ratio, other things held constant.
• C) 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.
• D) 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.
• E) Holding bonds is better than holding stock for investors because income from bonds is taxed on a more favorable basis than income from stock.

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Definitions:

True Scores

The theoretical values representing an individual's actual proficiency or ability on a measured construct, unimpeded by measurement error.

Difference

The quantitative distance or discrepancy between two values or results.

Test-Retest Reliability

The consistency of a measure or test over time, assessed by administering the same test to the same group on two different occasions.

Scores

Represents numerical expressions of performance or achievement often used in assessments and research.