PART A

Which of the following does not describe the impact of a firm\'s capital structure on ROA and ROCE?

Multiple Choice

• A highly levered firm can be advantageous to common stockholders.

• For a firm with no debt, ROCE will likely be the same as the ROA.

• For a high-debt firm experiencing a profitable year, ROCE will likely be higher than ROA if the debt was used to support operations.

• For a high-debt firm experiencing a profitable year, ROCE will likely be lower than ROA if the debt was not used to support operations.

PART B

Common value-relevant attributes for determining the value of a company include all the following except:

Multiple Choice

• Balance sheet book values.

• Free cash flows.

• Accounting earnings.

• Fair value of fixed assets.

PART C

Consider the following table of Actual earnings:

	Firm A				Firm B				Firm C
Actual earnings	$	6,000			$	14,000			$	18,000
r		10	%			8	%			12	%
BVt-1	$	100,000			$	150,000			$	190,000

What are the abnormal earnings for Firm B?

Multiple Choice

• $14,000

• $1,000

• $2,000

• $12,000