Which of the Following Statements Is CORRECT

question 103

Multiple Choice

Which of the following statements is CORRECT?

• A)The use of debt financing will tend to lower the basic earning power ratio, other things held constant.
• B)A firm that employs financial leverage will have a higher equity multiplier than an otherwise identical firm that has no debt in its capital structure.
• C)If two firms have identical sales, interest rates paid, operating costs, and assets, but differ in the way they are financed, the firm with less debt will generally have the higher expected ROE.
• D)The numerator used in the TIE ratio is earnings before taxes (EBT). EBT is used because interest is paid with post-tax dollars, so the firm's ability to pay current interest is affected by taxes.
• E)All else equal, increasing the total debt to total capital ratio will increase the ROA.

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Definitions:

Exchange Rate

The worth of one currency when converted into another.

Gold

A precious metal used as an investment, a currency standard, and jewelry due to its perceived value and physical properties.

Currency

The system of money in general use in a particular country or economic system for buying and selling goods and services.

Current Account

A component of a country's balance of payments that measures the trade balance plus net income and direct payments between countries.