Which of the Following Statements Is CORRECT

question 3

Multiple Choice

Which of the following statements is CORRECT?

• A) All else equal, increasing the debt ratio will increase the ROA.
• B) The use of debt financing will tend to lower the basic earning power ratio, other things held constant.
• C) 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.
• D) 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.
• E) Holding bonds is better than holding stock for investors because income from bonds is taxed on a more favorable basis than income from stock.

---

Definitions:

Coercive Power

The ability of a person to influence others' behavior by punishing them or threatening to punish them if they do not comply with their directives.

Cross-Generational Procedure

Approaches or methods that involve multiple generations, often to facilitate understanding, learning, or problem-solving across age groups.

Idle Rich Hypothesis

A theory suggesting that people who inherit wealth or do not need to work for a living may lack motivation or drive, leading to unproductive or leisure-focused lifestyles.

Hatfields And McCoys

A reference to a long-standing and violent feud between two families of the American rural South in the late 19th century, symbolizing intense and prolonged conflict.