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:

Predetermined Overhead Rate

An estimated rate used to allocate manufacturing overhead costs to individual products or job orders.

Estimated Machine-Hours

The anticipated amount of machine time required to complete a job or process.

Actual Machine-Hours

The actual number of hours that machines are run during a production period.

Variable Manufacturing Overhead

Refers to the production costs that change in proportion to the level of production activity, such as utilities or raw materials needed for manufacturing.