Which of the Following Statements Is Correct

question 90

Multiple Choice

Which of the following statements is correct?

• A) If two firms pay the same interest rate on their debt and have the same rate of return on assets,and if that ROA is positive,the firm with the higher debt ratio will also have a higher rate of return on common equity.
• B) One of the problems of ratio analysis is that the relationships are subject to manipulation.For example,we know that if we use some of our cash to pay off some of our current liabilities,the current ratio will always increase,especially if the current ratio is weak initially.
• C) Generally,firms with high profit margins have high asset turnover ratios,and firms with low profit margins have low turnover ratios;this result is exactly as predicted by the Du Pont equation.
• D) Firms A and B have identical earnings and identical dividend payout ratios.If Firm A's growth rate is higher than that of Firm B,Firm A's P/E ratio must be greater than Firm B's P/E ratio.
• E) None of the above statements is correct.

---

Definitions:

Least-Squares

A mathematical approach used to minimize the sum of the squares of the differences between observed and predicted values.

Regression Parameters

Parameters in a statistical model that estimate the relationship between independent variables and a dependent variable.

Least Squares

A mathematical method used to find the best-fitting line or curve to a given set of data points by minimizing the sum of the squares of the differences between the observed and predicted values.

Sum Of Squares

The sum of the squared differences between each observation and the overall mean, used in various statistical methods.