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Which of the following statements is CORRECT?
a. The ratio of long-term debt to total capital is more likely to experience
seasonal fluctuations than is either the DSO or the inventory turnover
ratio.
b. If two firms have the same ROA, the firm with the most debt can be
expected to have the lower ROE.
c. An increase in the DSO, other things held constant, could be expected
to increase the total assets turnover ratio.
d. An increase in the DSO, other things held constant, could be expected
to increase the ROE.
e. An increase in a firm’s debt ratio, with no changes in its sales or
operating costs, could be expected to lower the profit margin.
2. Companies HD and LD have the same tax rate, sales, total assets, and
basic earning power. Both companies have positive net incomes.
Company HD has a higher debt ratio and, therefore, a higher interest
expense. Which of the following statements is CORRECT?
a. Company HD has a lower equity multiplier.
b. Company HD has more net income.
c. Company HD pays more in taxes.