Which of the Following Statements Is Incorrect

question 107

Multiple Choice

Which of the following statements is incorrect?

• A) Companies where product costs represent a high percentage of total costs would be expected to have a low gross profit percentage.
• B) Gross profit percentages do not vary a great deal among industries.
• C) Profitability evaluation ratios are better at predicting income and solvency than are solvency determination ratios.
• D) A company's current financial ratio should be compared with the same financial ratio for (1) that company in prior years and/or (2) the ratio for the industry in which the company is affiliated.

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Definitions:

Expected Return

The weighted average of all possible returns for an investment, with the weights being the probabilities of each outcome.

Yield-to-Maturity

The total return anticipated on a bond if it is held until the maturity date, factoring in its current market price, face value, interest rate, and time to maturity.

Cost of Debt

The effective rate that a company pays on its total debt, reflecting the expense of borrowing funds or maintaining outstanding debts.

SML Approach

The Security Market Line approach, a concept in finance that describes the risk vs. return relationship for individual securities, based on the capital asset pricing model (CAPM).