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:

Perpetual Inventory System

A perpetual inventory system is a method of tracking inventory in real-time, with continuous updates to inventory records as sales and purchases occur.

Gross Method

An accounting practice where discounts for prompt payment are recorded as reductions of expense if taken.

General Journal Entries

Records of financial transactions not assigned to specific accounts in the general ledger, but recorded in a general journal.

Gross Margin

The difference between revenue and cost of goods sold divided by revenue, expressed as a percentage, indicating the financial health and efficiency of a product or business.