If a Company's Return on Assets Is Substantially Lower Than

question 55

True/False

If a company's return on assets is substantially lower than its cost of borrowing, then the common stockholders would normally want the company to have a relatively high debt/equity ratio.

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Definitions:

Gross Earnings

The total amount of money an individual earns before any deductions or taxes are applied.

Employment Test

A criterion or series of criteria used to determine the status of individuals as employees or independent contractors for tax and legal purposes.

Moving Expenses

Previously deductible expenses for moving which are necessary for starting a new job, currently only deductible for members of the Armed Forces on active duty moving under orders.

Separate Maintenance

Payments made by one spouse to another under a separation agreement, not classified as alimony for tax purposes.