Which of the Following Statements Is CORRECT

question 69

Multiple Choice

Which of the following statements is CORRECT?

• A) The use of debt financing will tend to lower the basic earning power ratio,other things held constant.
• B) 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.
• C) 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.
• D) The numerator used in the TIE ratio is earnings before taxes (EBT).EBT is used because interest is paid with post-tax dollars,so the firm's ability to pay current interest is affected by taxes.
• E) Other things held constant,increasing the total debt to total capital ratio will increase the ROA.

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Definitions:

Accounts Receivable

Money owed to a business by its customers for goods or services that have been delivered but not yet paid for.

Wages Payable

Liabilities arising from employees' salaries that are earned but not yet paid by the company, representing an obligation to pay for labor services received.

Depreciable Asset

An asset that loses value over time due to wear and tear or obsolescence and for which depreciation can be applied in accounting.

Chlorinated Hydrocarbons

Chemical compounds containing chlorine, carbon, and hydrogen, which are used in industrial applications but can be harmful to the environment and health.