If Brewster's Produces a Return on Assets of 14 Percent

question 55

Multiple Choice

If Brewster's produces a return on assets of 14 percent and also a return on equity of 14 percent,then the firm

• A)has no net working capital.
• B)is using its assets as efficiently as possible.
• C)has no debt of any kind.
• D)also has a current ratio of 14.
• E)has an equity multiplier of 1.4.

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Definitions:

Risky Securities

Financial instruments carrying a higher potential for loss, often offering greater potential returns to compensate for the increased risk.

Portfolio Variance

A measure of the dispersion of returns of a portfolio, calculated as the weighted average of the covariance of each asset in the portfolio.

Coefficient of Correlation

A statistical measure that indicates the degree to which two variables move in relation to each other, ranging from -1 to 1.