Which of the Following Statements Is CORRECT

question 125

Multiple Choice

Which of the following statements is CORRECT?

• A) Other things held constant,the less debt a firm uses,the lower its return on total assets will be.
• B) The advantage of the basic earning power ratio (BEP)over the return on total assets for judging a company's operating efficiency is that the BEP does not reflect the effects of debt and taxes.
• C) The return on common equity (ROE)is generally considered less significant,from a stockholder's viewpoint,than the return on total assets (ROA).
• D) The price/earnings (P/E)ratio tells us how much investors are willing to pay for a dollar of current earnings.In general,investors regard companies with higher P/E ratios as more risky and/or less likely to enjoy higher future growth.
• E) Suppose you are analyzing two firms in the same industry.Firm A has a profit margin of 10% versus a margin of 8% for Firm B.Firm A's total debt to total capital ratio is 70% versus 20% for Firm B.Based only on these two facts,you cannot reach a conclusion as to which firm is better managed,because the difference in debt,not better management,could be the cause of Firm A's higher profit margin.

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Definitions:

Framing

The process of constructing and presenting information or issues in a specific way that influences how they are perceived and interpreted.

Robert Entman

A scholar known for his contributions to the field of communication studies, particularly in framing and media effects.

Agenda-setting Theory

Agenda-setting theory posits that media doesn't tell us what to think, but what to think about, by selecting the issues that receive extensive coverage, thus influencing the public's perception of what topics are important.

McCombs and Shaw

Researchers known for establishing the Agenda-Setting Theory, which suggests that media has a significant influence on what topics the public perceives as important.