Question 5

1. A firm's financial leverage and equity multiplier will increase if the firm

   issues new bonds and uses the money to repurchase their own stock

   issues new common stock and uses the money to repurchase their own bonds

   changes to a more capital-intensive production process

   changes to a less capital-intensive production process

   Question 7

   The primary concern of long-term debt holders when assessing the strength of a firm is the firm's

   return on equity

   times interest earned

   net profit margin

   total asset turnover

   Question 8

   Firms A and B have identical operating profit but B has larger net income. Which of the following is the most likely explanation?

   Firm A has higher cost of goods sold

   Firm A has more long-term debt

   Firm A spends more on marketing.

   Firm A's products sell for lower prices than Firm B's products

   Question 9

   A firm raises $1m by issuing bonds with a coupon interest rate of 10% and uses the money to repurchase $1m of their own outstanding common stock. So total assets is unchanged, only the mix of debt and equity in the firm's capital structure is changed. Which of the following ratios will definitely decrease, assuming that EBIT is not changed? 1. net profit margin; 2. return on assets; 3. return on equity.

   1 only

   2 only

   3 only

   1 and 2 only

   1, 2, and 3

   Question 10

   ABC Corporation has a higher ROA than XYZ Corporation and a lower net PM. Which of the following statements must be true?

   		ABC has a lower ROE
   		ABC has a higher ROE
   		ABC has a larger TATO
   		ABC has a lower DR