Firms A and B have ROE’s of 15% and 12%, respectively. If firms A and B have ide

Question

Firms A and B have ROE’s of 15% and 12%, respectively. If firms A and B have identical total asset turnover ratios and identical equity multipliers, the most reasonable inference is that
a. Firm A is more capital intensive than firm B.
b. Firm A has more financial leverage than firm B.
c. Firm A does not contain its costs as well as firm B.
d. Firm A has a higher net profit margin than firm B.
e. All of the above.
f. B and D only.

The enterprise-value-to-EBITDA ratio is higher for Firm E than for Firm F. If both firms are in the same industry, which of the following explanations is (are) plausible?
a. The expected growth rate in free cash flows is higher for Firm E than for Firm F.
b. The risk of future free cash flows is lower for Firm E than for Firm F.
c. Firm E is overvalued, or Firm F is undervalued, or both.
d. All of the above
e. A and C

Explanation / Answer

First one, Firm A is more capital intensive than firm B. SEcond one, d. All of the above

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