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:

Convergent Thinking

A thought process that aims at arriving at a single, correct solution to a problem.

Affinitizing

The process of grouping related information or ideas into categories to better analyze or understand them.

Multivoting

A decision-making technique used in groups to narrow down a large set of options to a manageable number by allowing multiple votes.

Prioritization Matrix

A tool used to rank projects, tasks, or options based on their relative importance and urgency.