Question 15 A firm has a profit margin of 4%, a total asset turnover of 2x and a
ID: 2626942 • Letter: Q
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.