Marshall McBride Inherited $10,000 from His Great Aunt Martha

question 132

Multiple Choice

Marshall McBride inherited $10,000 from his Great Aunt Martha. He invested $5,000 in a new, risky start-up venture, 10th Generation, Inc., and the other $5,000 in Major Chemicals, Inc., a well-known chemical company that's been around for years. Today, his financial planner called to inform him that the Return on equity on 10th Generation = 6.28%; and, Return on equity on Major Chemicals = 10.50%. Which of the following facts is important information for Marshall McBride?

• A) The return on equity on new companies is always lower than the return on equity of well-established firms.
• B) Investors willing to take added risk, expect higher returns.
• C) Return on equity is a liquidity ratio that has very little bearing on profitability.
• D) If Marshall wants to know how well his investments are performing, he should employ leverage ratios such as the debt to equity ratio.

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Definitions:

Elemental Analysis

A method of measuring the relative amounts of each element within a chemical sample.

Empirical Formula

The simplest positive integer ratio of atoms present in a compound, not providing structural information but indicating the proportion of elements.

Molecular Formula

A molecular formula represents the number and type of atoms in a molecule, indicating the composition of the molecule without showing its structure.

Elemental Analysis

A method for determining the composition of a substance in terms of its constituent elements.