Which of the Following Statements Is Correct

question 90

Multiple Choice

Which of the following statements is correct?

• A) If two firms pay the same interest rate on their debt and have the same rate of return on assets,and if that ROA is positive,the firm with the higher debt ratio will also have a higher rate of return on common equity.
• B) One of the problems of ratio analysis is that the relationships are subject to manipulation.For example,we know that if we use some of our cash to pay off some of our current liabilities,the current ratio will always increase,especially if the current ratio is weak initially.
• C) Generally,firms with high profit margins have high asset turnover ratios,and firms with low profit margins have low turnover ratios;this result is exactly as predicted by the Du Pont equation.
• D) Firms A and B have identical earnings and identical dividend payout ratios.If Firm A's growth rate is higher than that of Firm B,Firm A's P/E ratio must be greater than Firm B's P/E ratio.
• E) None of the above statements is correct.

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Definitions:

Controlled Studies

Research experiments that include a control group against which the outcomes of the experimental group are compared.

Meta-Analysis

A statistical technique for summarizing the results of multiple studies to arrive at a conclusion about a body of research.

Evidence-Based

Pertaining to an approach that emphasizes the practical application of the outcomes of rigorous research as the basis for decision-making or practice.

Adolescent Substance Abuse

The use of drugs, alcohol, or other substances by individuals in their teenage years, often leading to physical, mental, or social problems.