Which of the Following Statements Is CORRECT

question 43

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%.The firm finances using only debt and common equity,and total assets equal total invested capital.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%.The firm finances using only debt and common equity,and total assets equal total invested capital.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 total debt to total capital 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%.The firm finances using only debt and common equity,and total assets equal total invested capital.Under these conditions,the ROE will decrease.

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Definitions:

Business Products

Goods and services that are purchased by organizations for use in the production of other goods and services, for resale, or for general business operations.

B2C Products

Goods and services offered by businesses directly to the end consumer for personal use.

B4B Products

Products or services that are specifically designed and sold by businesses to other businesses rather than individual consumers, focusing on meeting the specialized needs of organizations.

BOB Products

Black on Black products, emphasizing goods designed and marketed specifically to appeal to a Black audience.