Question 15 A firm has a profit margin of 4%, a total asset turnover of 2x and a

Question

Question 15

A firm has a profit margin of 4%, a total asset turnover of 2x and a debt ratio of 50%. The firm's ROA=____ and the firm's ROE=_____.

2%, 4%

8%, 12%

4%, 12%

8%, 16%

4 points   

Question 16

Suppose a corporation issues $1,000,000 of new common stock and uses the money raised to repurchase (retire) some of their outstanding corporate bonds that have a coupon interest rate of 10%. The firm's total assets, sales and EBIT are unchanged. Which of the following will occur? 1. The firm's ROA will decrease; 2. The firm's TIE will decrease; 3. The firm's nPM will increase

1 only

2 only

3 only

1 and 2 only

1 and 3 only

4 points   

Question 17

Which of the following must be correct? Remember that BEP=EBIT/TA

If a firm's BEP is 5% then their ROA is 5%.

If a firm's ROA is 5% then their ROE is 5%.

If a firm has no debt then their BEP is equal to their ROA.

If a firm has no debt and pays no taxes then their BEP is equal to their ROA.

4 points   

Question 18

Which of the following statements is correct?

Balance sheet numbers reflect current market values.

Depreciation and interest are both non-cash expenses.

Depreciation and interest are both tax-deductible expenses.

Net fixed assets will always be greater than gross fixed assets.

2%, 4%

8%, 12%

4%, 12%

8%, 16%

Explanation / Answer

8%, 16%

3rd only

If a firm has no debt and pays no taxes then their BEP is equal to their ROA.

Depreciation and interest are both tax-deductible expenses.

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