The Segment Return on Assets

question 98

Multiple Choice

The segment return on assets:

• A) Can only be determined for international companies.
• B) Reflects the profitability of a segment.
• C) Is difficult to calculate because companies with traded stock are not required to report segment information.
• D) Is calculated as segment average assets divided by segment operating income.
• E) Is calculated as segment sales divided by segment average assets.

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Definitions:

Marginal Tax Rate

The tax rate applied to an additional dollar of income, representing the rate at which your next dollar of income will be taxed.

Cost Of Debt

The effective rate that a company pays on its total debt, indicating the average return that lenders demand for borrowing their capital.

Capital Structure

Capital structure refers to the mix of equity, debt, and other financing sources a company uses to fund its operations and growth.

Optimal Capital Structure

The best combination of debt, preferred, and equity financing that maximizes a company’s stock price by minimizing its cost of capital.