If the Debt Ratio Is 50 Percent, the Interest Rate

question 71

Multiple Choice

If the debt ratio is 50 percent, the interest rate on all debt is 8 percent, the tax rate is 50 percent, and the return on equity is 10 percent, then the ratio of earnings before interest and taxes (EBIT) to total assets, or the basic earning power ratio, must be

• A)10%.
• B)14%.
• C)12%.
• D)8%.
• E)16%.

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Definitions:

Liable

Responsible by law; legally answerable for one's actions or inactions.

Personally

Refers to something done by a person directly, without the involvement of anyone else or any intermediaries.

Proper Indorsement

A legally acceptable signature or annotation on a document, such as a check, that authorizes its transfer or acceptance.

Dishonor

The refusal or inability to pay a debt when due, or the failure of a financial instrument, like a check, to be accepted or paid on presentation.