If a Firm Finances with Only Debt and Common Equity

question 1

True/False

If a firm finances with only debt and common equity, and if its equity multiplier is 3.0, then its debt ratio must be 0.667.

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Definitions:

Operations

The day-to-day activities involved in running a business, such as production, sales, and administration.

Residual Value

The estimated value that an asset will have at the end of its useful life, after depreciation has been deducted.

Useful Life

The estimated duration a fixed asset is expected to be economically useful to an organization, beyond which it may be depreciated or disposed of.

Average Rate of Return

A financial ratio that measures the profitability of an investment, calculated as the average annual profit divided by the initial investment cost.