Which of the Following Statements Is CORRECT

question 125

Multiple Choice

Which of the following statements is CORRECT?

• A) Other things held constant,the less debt a firm uses,the lower its return on total assets will be.
• B) The advantage of the basic earning power ratio (BEP)over the return on total assets for judging a company's operating efficiency is that the BEP does not reflect the effects of debt and taxes.
• C) The return on common equity (ROE)is generally considered less significant,from a stockholder's viewpoint,than the return on total assets (ROA).
• D) The price/earnings (P/E)ratio tells us how much investors are willing to pay for a dollar of current earnings.In general,investors regard companies with higher P/E ratios as more risky and/or less likely to enjoy higher future growth.
• E) Suppose you are analyzing two firms in the same industry.Firm A has a profit margin of 10% versus a margin of 8% for Firm B.Firm A's total debt to total capital ratio is 70% versus 20% for Firm B.Based only on these two facts,you cannot reach a conclusion as to which firm is better managed,because the difference in debt,not better management,could be the cause of Firm A's higher profit margin.

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Definitions:

Identity Foreclosure

The status of adolescents who prematurely commit to an identity without adequately exploring alternatives.

Moratorium

The status of adolescents who may have explored various identity alternatives to some degree but have not yet committed themselves.

Identity Diffusion

The status of adolescents who consider various identity alternatives but never commit to one or never even consider identity options in any conscious way.

Identity Foreclosure

A stage in Erikson's theory of identity development where an individual commits to an identity without exploring other options.