Which of the Following Statements Is CORRECT

question 10

Multiple Choice

Which of the following statements is CORRECT?

• A) suppose a firm's total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10%, and its debt increases from 40% of total assets to 60%. under these conditions, the roe will decrease.
• B) suppose a firm's total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10% and its debt increases from 40% of total assets to 60%. under these conditions, the roe will increase.
• C) suppose a firm's total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10% and its debt increases from 40% of total assets to 60%. without additional information, we cannot tell what will happen to the roe.
• D) the modified dupont equation provides information about how operations affect the roe, but the equation does not include the effects of debt on the roe.
• E) other things held constant, an increase in the debt ratio will result in an increase in the profit margin on sales.

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