Which of the Following Statements Is CORRECT

question 86

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 regarded as being 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 being 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:

Homelessness

The condition of not having a permanent place to live, often resulting in living on the streets, in shelters, or in temporary accommodations.

Fear

An emotional response to perceived threats or danger, characterized by feelings of anxiety and apprehension.

Shame

A painful emotion caused by consciousness of wrongdoing, inadequacy, or embarrassment.

Guilt

A feeling of responsibility or remorse for some offense, crime, wrong, whether real or imagined.