(1) Which of the following statements about business models best describes the differences in gross (and net) profit margin that we observe?

The higher gross profit companies are typically those that have some competitive advantage that allows them to charge a market price for their products that cannot be easily competed away.The lower gross profit companies are those that can manufacture their products at the lowest cost.The lower gross profit companies are those that sell the highest unit volumes.The higher gross profit companies are those that charge a higher price for their products.

(2) Which of the following statements best describes the differences in the ratio of net income to equity that we observe?

The highest return to equity companies are those that are able to keep their operating costs the lowest.The highest return on equity companies are those that maintain high levels of debt and, as a result, reduce their utilization of equity.The highest return on equity companies are those that are able to sustain some competitive advantage that leads to higher profitability and are also able to minimize their use of equity.The highest return on equity companies are those that are able to charge high prices for their products and, thus, report the highest gross profit-to-sales ratio.

(3) Which of the following statements best describes the reason why some companies are able to take on higher levels of debt than are others?

Companies that can sustain higher levels of debt generally operate in consumer products industries.Companies that can sustain higher levels of debt are typically larger companies.Companies that can sustain higher levels of debt are typically those with the most stable and positive cash flows.Companies that can sustain higher levels of debt are generally younger companies whose market values are relatively low and, as a result, cannot raise equity capital.