Which of the Following Statements Is CORRECT

question 43

Multiple Choice

Which of the following statements is CORRECT?

• A) Suppose a firm's total assets turnover ratio falls from 1.0 to 0.9,but at the same time its profit margin rises from 9% to 10% and its debt increases from 40% of total assets to 60%.The firm finances using only debt and common equity,and total assets equal total invested capital.Under these conditions,the ROE will increase.
• B) Suppose a firm's total assets turnover ratio falls from 1.0 to 0.9,but at the same time its profit margin rises from 9% to 10% and its debt increases from 40% of total assets to 60%.The firm finances using only debt and common equity,and total assets equal total invested capital.Without additional information,we cannot tell what will happen to the ROE.
• C) The DuPont equation provides information about how operations affect the ROE,but the equation does not include the effects of debt on the ROE.
• D) Other things held constant,an increase in the total debt to total capital ratio will result in an increase in the profit margin.
• E) Suppose a firm's total assets turnover ratio falls from 1.0 to 0.9,but at the same time its profit margin rises from 9% to 10%and its debt increases from 40% of total assets to 60%.The firm finances using only debt and common equity,and total assets equal total invested capital.Under these conditions,the ROE will decrease.

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Definitions:

Maladaptive Efforts

Behavior strategies or patterns that adversely affect a person's ability to adapt to situations or stress, often preventing proper or healthy responses.

Anxiety

The state of being nervous, fretful, or uneasy due to an event whose outcome is uncertain.

Fear

An emotional response to perceived threats or danger, leading to a desire to avoid or confront the source of fear.

Impulsive Behaviour

Actions performed with little or no forethought, reflection, or consideration of the consequences.