Which of the Following Statements Is CORRECT

question 87

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) Holding bonds is better than holding stock for investors because income from bonds is taxed on a more favorable basis than income
• From stock.
• E) All else equal, increasing the debt ratio will increase the ROA.

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Definitions:

Corporate Governance

The system of rules, practices, and processes by which a company is directed and controlled, focusing on balancing the interests of stakeholders.

Governments

The system or group of people governing an organized community, often a state, including institutions and individuals with authority to make and enforce laws.

Organizational Stakeholders

Individuals or groups that have an interest, stake, or investment in the success and operations of an organization, including employees, customers, investors, and suppliers.

Behaviour

This encompasses the actions or reactions of an individual or group, often in response to their environment or stimuli.