Question 5 A firm\'s financial leverage and equity multiplier will increase if t

ID: 2626852 • Letter: Q

Question

Question 5

A firm's financial leverage and equity multiplier will increase if the firm

issues new bonds and uses the money to repurchase their own stock

issues new common stock and uses the money to repurchase their own bonds

changes to a more capital-intensive production process

changes to a less capital-intensive production process

Question 7

The primary concern of long-term debt holders when assessing the strength of a firm is the firm's

return on equity

times interest earned

net profit margin

total asset turnover

Question 8

Firms A and B have identical operating profit but B has larger net income. Which of the following is the most likely explanation?

Firm A has higher cost of goods sold

Firm A has more long-term debt

Firm A spends more on marketing.

Firm A's products sell for lower prices than Firm B's products

Question 9

A firm raises $1m by issuing bonds with a coupon interest rate of 10% and uses the money to repurchase $1m of their own outstanding common stock. So total assets is unchanged, only the mix of debt and equity in the firm's capital structure is changed. Which of the following ratios will definitely decrease, assuming that EBIT is not changed? 1. net profit margin; 2. return on assets; 3. return on equity.

1 only

2 only

3 only

1 and 2 only

1, 2, and 3

Question 10

ABC Corporation has a higher ROA than XYZ Corporation and a lower net PM. Which of the following statements must be true?

ABC has a lower ROE

ABC has a higher ROE

ABC has a larger TATO

ABC has a lower DR