If GUW and BFG Have the Same Return on Equity,then

question 35

Multiple Choice

If GUW and BFG have the same return on equity,then:

• A) Only I is true
• B) Only III is true
• C) Only II and III are true
• D) Only I and III are true
• I.The two companies must have the same operating performance.
• II.If GUW has higher leverage than BFG,it must also have higher operating performance.
• III.If BFG has lower operating performance than GUW,it must have higher leverage.

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Definitions:

Constant-cost Industry

An industry where the costs of production do not change as the total output in the industry changes.

Long-run Supply

Long-run Supply refers to the quantity of a good that producers are willing and able to supply onto the market at different price levels when all production inputs can be varied.

Supply Curve

A graph showing the relationship between the price of a good and the quantity of that good that producers are willing to supply.

Increasing-cost Industry

An industry in which the costs of production increase as the industry expands due to factors like limited resources or higher input prices.