Which of the Following Statements Is CORRECT

question 56

Multiple Choice

Which of the following statements is CORRECT?

• A) If two firms differ only in their use of debt⎯i.e., they have identical assets, sales, operating costs, and tax rates⎯but one firm has a higher debt ratio, the firm that uses more debt will have a higher profit margin on sales.
• B) If one firm has a higher debt ratio than another, we can be certain that the firm with the higher debt ratio will have the lower TIE ratio, as that ratio depends entirely on the amount of debt a firm uses.
• C) A firm's use of debt will have no effect on its profit margin on sales.
• D) If two firms differ only in their use of debt⎯i.e., they have identical assets, sales, operating costs, interest rates on their debt, and tax rates⎯but one firm has a higher debt ratio, the firm that uses more debt will have a lower profit margin on sales.
• E) The debt ratio as it is generally calculated makes an adjustment for the use of assets leased under operating leases, so the debt ratios of firms that lease different percentages of their assets are still comparable.

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Definitions:

Fourth Stage

In the context of product life cycle, this refers to the decline stage, where sales decrease and a product may be phased out.

Interest

Monetary charge for borrowing money or the return on investment capital.

Awareness

The degree to which consumers are familiar with the presence and characteristics of a product, brand, or issue.

Adoption

The act of accepting, taking up, or starting to use something new or different, such as technology or practices.