Which of the Following Statements Is CORRECT

question 85

Multiple Choice

Which of the following statements is CORRECT?

• A) if two firms differ only in their use of debtσi.e., they have identical assets, sales, operating costs, and tax ratesσbut one firm has a higher debt ratio, the firm that uses more debt will have a higher profit margin on sales.
• B) if one firm has a higher debt ratio than another, we can be certain that the firm with the higher debt ratio will have the lower tie ratio, as that ratio depends entirely on the amount of debt a firm uses.
• C) a firm's use of debt will have no effect on its profit margin on sales.
• D) if two firms differ only in their use of debtσi.e., they have identical assets, sales, operating costs, interest rates on their debt, and tax ratesσbut one firm has a higher debt ratio, the firm that uses more debt will have a lower profit margin on sales.
• E) the debt ratio as it is generally calculated makes an adjustment for the use of assets leased under operating leases, so the debt ratios of firms that lease different percentages of their assets are still comparable.

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Definitions:

Organization Development (OD)

A systematic approach to organizational improvement that applies behavioral science theory and research in order to increase individual and organizational well-being and effectiveness.

Characteristics

Qualities, attributes, or distinguishing features that define an individual, object, or concept.

Team Development

The process of improving collective performance by enhancing interpersonal relationships, clarifying roles, and fostering team cohesion.

Acceptable Behavior

Conduct that is deemed appropriate or within the norms of a particular society, group, or context.