1. A fixed charge coverage: a. is a balance sheet indication of debt carrying ability. b. is an income statement indication of debt carrying ability. c. is a liquidity ratio. d. frequently includes research and development. e computation is standard from firm to firm. If a firm has substantial capital or financing leases disclosed in the notes but not capitalized in the financial statements, then: a. the times interest earned ratio will be overstated, based upon the financial statements. b. the fixed charge ratio will be overstated, based upon the financial statements. c. the debt ratio will be understated. d. the working capital will be understated. e. None of the answers are correct. 3. Return on assets cannot fall under which of the following circumstances? 1. II. III. IV. Net Profit Margin decline rise rise decline Total Asset Turnover rise decline rise decline a. I b. II c. III d. IV e. The ratio could fall under all of the answers. 4. Which of the following would most likely cause a rise in net profit margin? a. Increased sales b. Decreased preferred dividends c. Increased cost of sales d. Decreased operating expenses e. Decreased earnings per share I Interest expense creates magnification of earnings through financial leverage because: 5. a. the interest rate is variable. b. interest accompanies debt financing. c. the use of interest causes higher earnings. d. interest costs are cheaper than the required rate of return to equity owners. e. while earnings available to pay interest rise, earnings to residual owners rise faster