Which of the Following Statements Is CORRECT

question 68

Multiple Choice

Which of the following statements is CORRECT?

• A) An increase in a firm's debt ratio, with no changes in its sales or operating costs, could be expected to lower the profit margin.
• B) The ratio of long-term debt to total capital is more likely to experience seasonal fluctuations than is either the DSO or the inventory turnover ratio.
• C) If two firms have the same ROA, the firm with the most debt can be expected to have the lower ROE.
• D) An increase in the DSO, other things held constant, could be expected to increase the total assets turnover ratio.
• E) An increase in the DSO, other things held constant, could be expected to increase the ROE.

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Definitions:

Contract

A legally binding agreement between two or more parties outlining obligations, rights, and conditions.

T-Bill

Short for Treasury Bill, a short-term government security issued at a discount from the par value and repaid at maturity.

Annual Rate

A percentage representing the interest or growth a sum of money would earn over the course of a year.

Discounted

Reduced in price or value, often to encourage purchase or reflect the present value of future cash flows.