The Use of Financial Leverage Will Be Detrimental to a Firm's

question 81

Multiple Choice

The use of financial leverage will be detrimental to a firm's ROE if the:

• A)Firm has no long-term debt
• B)Firm's profit margin does not exceed its asset turnover
• C)Interest expense exceeds the tax liability
• D)Interest rate on debt exceeds the firm's ROA

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Definitions:

Three Inventory Accounts

Refers to the three main types of inventory accounts on the balance sheet: raw materials, work-in-progress, and finished goods.

Direct Materials

Raw materials directly used in the manufacturing of a product, directly traceable to the finished product.

Office Supplies

Items like pens, paper, calculators, and computers that are used on a daily basis within an office setting.

Permanent/Temporary

Refers to accounts in accounting: permanent accounts are balance sheet accounts that carry over into the next accounting period, while temporary accounts are income statement accounts closed at the end of the accounting period.