Last Year's Return on Equity Was 30 Percent, and While

question 62

Multiple Choice

Last year's return on equity was 30 percent, and while the same amount of earnings was generated this year, the ROE has decreased to 20 percent.The firm has no preferred stock.What caused the decrease?

• A)Equity decreased by 10 percent
• B)Equity decreased by 50 percent
• C)Equity increased by 10 percent
• D)Equity increased by 50 percent

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Definitions:

Net Collection Float

The time difference between when a check is deposited and when the funds are available in the firm's account, affecting available cash.

Net Disbursement Float

The time difference between when a check is issued by a company and when the funds are actually withdrawn from the company's bank account.

Outstanding Checks

Checks that have been written and recorded in the account ledger but not yet cashed or cleared by the bank.

Availability Delay

The delay between the time a deposit is made into a bank account and the time those funds become accessible.