If a Firm Produces a Twelve Percent Return on Assets

question 35

Multiple Choice

If a firm produces a twelve percent return on assets and also a twelve percent return on equity,then the firm:

• A)may have short-term, but not long-term debt.
• B)is using its assets as efficiently as possible.
• C)has no net working capital.
• D)has a debt-equity ratio of 1.0.
• E)has an equity multiplier of 1.0.

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Definitions:

Perfection

In finance and law, the process of securing a security interest in collateral through legal documentation and registration.

First Claim

The priority right to make a demand or assert a right before others; often used in financial contexts, such as creditors having first claim on assets.

Purchase-Money Security Interest

A legal claim that allows a lender to repossess or foreclose on property if the borrower fails to repay a loan used to purchase the property.

Collateral

Assets pledged by a borrower to secure a loan or credit, which can be seized by the lender if the borrower fails to make required payments.