Which One of the Following Statements Is Correct

question 51

Multiple Choice

Which one of the following statements is correct?

• A) If the total debt ratio is greater than .50, then the debt-equity ratio must be less than 1.0.
• B) Long-term creditors would prefer the times interest earned ratio be 1.4 rather than 1.5.
• C) The debt-equity ratio can be computed as 1 plus the equity multiplier.
• D) An equity multiplier of 1.2 means a firm has $1.20 in sales for every $1 in equity.
• E) An increase in the depreciation expense will not affect the cash coverage ratio.

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Definitions:

Liquidity

The ease with which an asset can be converted into cash without affecting its market price.

Growth Companies

Companies characterized by their potential to grow their revenues and earnings at a faster rate than the average business within their industry or market.

Property, Plant, And Equipment

Tangible long-lived assets used in the operations of a business, such as machinery, buildings, and vehicles.

Operating Cash Flows

Refers to the cash generated from a company's core business operations, excluding financing and investing activities.