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Business, 10.10.2019 00:30 Spoilmom7231

Which of the following statements is correct? a. klein cosmetics has a profit margin of 5.0%, a total assets turnover ratio of 1.5 times, no debt and therefore an equity multiplier of 1.0, and an roe of 7.5%. the cfo recommends that the firm borrow funds using long-term debt, use the funds to buy back stock, and raise the equity multiplier to 2.0. the size of the firm (assets) would not change. she thinks that operations would not be affected, but interest on the new debt would lower the profit margin to 4.5%. this would probably not be a good move, as it would decrease the roe from 7.5% to 6.5%. b. suppose a firm wants to maintain a specific tie ratio. it knows the amount of its debt, the interest rate on that debt, the applicable tax rate, and its operating costs. with this information, the firm can calculate the amount of sales required to achieve its target tie ratio. c. since the roa measures the firm's effective utilization of assets without considering how these assets are financed, two firms with the same ebit must have the same roa.

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Which of the following statements is correct? a. klein cosmetics has a profit margin of 5.0%, a tot...
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