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Question;Chapter 4Chapter 4;[i]. Ramala;Corp's sales last year were $48,000, and its total assets were $25,500. What was its total assets turnover ratio;(TATO)?;a.1.88;b.1.99;c.1.10;d.1.21;e.1.32;[ii]. Ruby;Corp's sales last year were $435,500, its operating costs were $350,000, and;its interest charges were $10,000. What;was the firm's times interest earned (TIE);ratio?;a.8.29;b.8.42;c.8.55;d.8.68;e.8.81;[iii]. Roberts;Corp's sales last year were $300,000, and its net income after taxes was;$25,000. What was its profit margin on;sales?;a.7.65%;b.7.82%;c.7.99%;d.8.16%;e.8.33%;[iv]. Reynolds;Corp's total assets at the end of last year were $300,000 and its net income;after taxes was $25,000. What was its;return on total assets?;a.8.15%;b.8.33%;c.8.51%;d.8.69%;e.8.87%;[v]. Rollins;Corp's total assets at the end of last year;were $300,000 and its EBIT was $75,000.;What was its basic earning power (BEP)?;a.17.50%;b.20.00%;c.22.50%;d.25.00%;e.27.50%;[vi]. Raleigh;Corp's total common equity at the end of last year was $300,000 and its net income after taxes;was $55,000. What was its ROE?;a.18.33%;b.18.67%;c.19.00%;d.19.33%;e.19.67%;[vii]. Rutland Corp's;stock price at the end of last year was $30.25 and its earnings per share for;the year were $2.45. What was its P/E;ratio?;a.11.65;b.12.00;c.12.35;d.12.70;e.13.05;[viii].Rand Corp's;stock price at the end of last year was $40.00, and its book value per share;was $24.50. What was its Market/Book;ratio?;a.1.03;b.1.18;c.1.33;d.1.48;e.1.63;[ix]. Midwest;Lumber had a profit margin of 5.1%, a total assets turnover of 1.6, and an;equity multiplier of 1.8. What was the;firm's ROE?;a.14.39%;b.14.69%;c.14.99%;d.15.29%;e.15.59%;[x]. An;investor is considering starting a new business. The company would require;$500,000 of assets, and it would be financed entirely with common stock. The investor will go forward only if she;thinks the firm can provide a 15.0% return on the invested capital, which means;that the firm must have an ROE of 15.0%.;How much net income must be expected to warrant starting the business?;a.$45,000;b.$55,000;c.$65,000;d.$75,000;e.$85,000;[xi]. Rolle;Corp has $500,000 of assets, and it uses no debt--it is financed only with;common equity. The new CFO wants to;employ enough debt to bring the Debt/Assets ratio to 45%, using the proceeds;from the borrowing to buy back common stock at its book value. How much must the firm borrow to achieve the;target debt ratio?;a.$225,000;b.$240,000;c.$255,000;d.$270,000;e.$285,000;[xii]. Rull;Corp's assets are $500,000, and its total debt outstanding is $200,000. The new CFO wants to employ a debt ratio of;60%. How much debt must the company add;or subtract to achieve the target debt ratio?;a.$ 80,000;b.$ 90,000;c.$100,000;d.$110,000;e.$120,000;[xiii].Collins;Inc's latest net income was $1 million, and it had 200,000 shares;outstanding. The company wants to pay;out 40% of its income. What dividend per;share should the company declare?;a.$1.60;b.$1.70;c.$1.80;d.$1.90;e.$2.00;[xiv]. Cooper;Inc's latest EPS was $4.00, its book value per share was $20.00, it had 200,000;shares outstanding, and its debt ratio was 40%.;How much debt was outstanding?;a.$2,333,333;b.$2,666,667;c.$3,000,000;d.$3,333,333;e.$3,666,667;[xv]. Kirby;Industries has sales of $110,000 and accounts receivable of $12,500, and it;gives its customers 30 days to pay. The;industry average DSO is 25.5 days, based on a 365-day year. If the company changes its credit and;collection policy sufficient to cause its DSO to fall to the industry average;and if it earns 9.5% on any cash freed-up by this change, how would that affect;the firm's net income, assuming other things are held constant?;a.$422.12;b.$435.43;c.$447.86;d.$457.43;e.$469.93;[xvi]. Rangala;Corp sells on terms that allow customers 30 days to pay for merchandise. Its sales last year were $450,000, and its;year-end receivables were $45,000. If;its DSO is less than the 30-day credit period, then customers are paying on;time. Otherwise, they are paying;late. By how much are customers paying;early or late? Base your answer on this;equation: DSO -;Credit Period = days early or late, and use a 365-day year;when calculating the DSO. A positive;answer indicates late payments.;a.6.50;b.6.75;c.7.00;d.7.25;e.7.50;[xvii].Regan;Corp's sales last year were $450,000, and its year-end receivables were;$45,000. On average, Regan's customers;pay 10 days late (and thus they are charged a penalty). How many days of "free" credit does;Regan give its customers before they are late and thus assessed a penalty? Base your answer on this equation: DSO - Average days late = Days of free;credit, use a 365-day year when calculating the DSO, and round to the closest;whole number.;a.23 days;b.25 days;c.27 days;d.29 days;e.31 days;[xviii]. Rangoon;Corp's sales last year were $400,000, and its year-end total assets were $300,000. The average firm in the industry has a total;assets turnover ratio (TATO) of 2.5. The;new CFO believes the firm has excess assets that can be sold so as to bring the;TATO down to the industry average without affecting sales. By how much must the assets be reduced to;bring the TATO to the industry average?;a.$100,000;b.$110,000;c.$120,000;d.$130,000;e.$140,000;[xix]. A new firm;is developing its business plan. It will;require $600,000 of assets, and it projects $435,000 of sales and $350,000 of;operating costs for the first year. The;firm is quite sure of these numbers because of contracts with its customers and;suppliers. It can borrow at a rate of;7.5%, but the bank requires it to have a TIE of at least 4.0, and if the TIE;falls below this level the bank will call in the loan and the firm will go;bankrupt. What is the maximum;debt ratio the firm can use? (Hint;Find the maximum dollars of interest, then the debt that produces that;interest, and then the related debt ratio.);a.46.1%;b.47.2%;c.48.6%;d.50.5%;e.51.9%;[xx]. Burger;Corp has $500,000 of assets, and it uses only common equity capital (zero;debt). Its sales for the last year were;$600,000, and its net income after taxes was $25,000. Stockholders recently voted in a new;management team that has promised to lower costs and get the return on equity;up to 15%. What profit margin would;Burger need in order to achieve the 15% ROE, holding everything else constant?;a. 8.00%;b. 9.50%;c.11.00%;d.12.50%;e.14.00%;[xxi]. Rex Corp's;EBITDA last year was $385,000 (= EBIT + depreciation + amortization), its;interest charges were $10,000, it had to repay $25,000 of long term debt, and;it had to make a payment of $20,000 under a long term lease. The firm had no amortization charges. What was the EBITDA coverage ratio?;a.7.36;b.7.69;c.7.91;d.8.25;e.8.42;[xxii].Last year;Southern Chemicals had sales of $200,000, assets of $125,000, a profit margin;of 5.15%, and an equity multiplier of 1.85.;The CFO believes that the company could reduce its assets by $25,000;without affecting either sales or costs.;Had it reduced its assets in this amount, and had the debt ratio, sales;and costs remained constant, by how much would the ROE have changed?;a.2.75%;b.3.03%;c.3.81%;d.4.11%;e.4.37%;[xxiii]. During;the latest year Ruth Corp. had sales of $300,000 and a net income of $20,000;and its year-end assets were $200,000.;The firm's total debt to total assets ratio was 40%. Based on the Du Pont equation, what was the;firm's ROE?;a.15.33%;b.15.67%;c.16.00%;d.16.33%;e.16.67%;[xxiv].Last year;Oliver Inc had a total assets turnover of 1.60 and an equity multiplier of;1.85. Its sales were $200,000 and its;net income was $10,000. The CFO believes;that the company could have operated more efficiently, lowered its costs, and;increased its net income by $5,000 without changing its sales, assets, or;capital structure. Had it cut costs and;increased its net income in this amount, by how much would the ROE have;changed?;a.7.20%;b.7.40%;c.7.60%;d.7.80%;e.8.00%;[xxv]. Last year;Bell Corp had $200,000 of assets, $300,000 of sales, $20,000 of net income, and;a debt-to-total-assets ratio of 40%. The;new CFO believes the firm has excessive fixed assets and inventory that could;be sold, enabling it to reduce its total assets to $150,000. Sales, costs, and net income would not be;affected, and the firm would maintain the 40% debt ratio. By how much would the reduction in assets;improve the ROE?;a.4.66%;b.4.96%;c.5.26%;d.5.56%;e.5.86%;[xxvi].Last year;Candle Corp had $200,000 of assets, $300,000 of sales, $20,000 of net income;and a debt-to-total-assets ratio of 40%.;The new CFO believes a new computer program will enable it to reduce;costs and thus raise net income to $30,000.;Assets, sales, and the debt ratio would not be affected. By how much would the cost reduction improve;the ROE?;a.8.33%;b.8.67%;c.9.00%;d.9.33%;e.9.67%;[xxvii]. Last;year Chantler Corp. had $200,000 of assets, $20,000 of net income, and a;debt-to-total-assets ratio of 30%. Now;suppose the new CFO convinces the president to increase the debt ratio to 45%. Sales and total assets will not be affected;but interest expenses would increase.;However, the CFO believes that better cost controls would be sufficient;to offset the higher interest expense and thus keep net income unchanged. By how much would the change in the capital;structure improve the ROE?;a.3.51%;b.3.68%;c.3.90%;d.4.13%;e.4.47%;[xxviii]. Last;year Charter Corp. had sales of $300,000, operating costs of $265,000, and;year-end assets of $200,000. The;debt-to-total-assets ratio was 25%, the interest rate on the debt was 10%, and;the firm's tax rate was 35%. The new CFO;wants to see how the ROE would have been affected if the firm had used a 60%;debt ratio. Assume that sales and total;assets would not be affected, and that the interest rate and tax rate would;both remain constant. By how much would the ROE change in response to the;change in the capital structure?;a.5.01%;b.5.20%;c.5.35%;d.5.57%;e.5.69%;[xxix].Cooper Inc.;expects sales next year to be $300,000 and operating costs to be $270,000. The company will have $200,000 of assets, and;under the current plan they will be financed with 30% debt and 70% common;equity. The interest rate on the debt;will be 10%, but the TIE ratio;must be kept at 4.0 or more. The firm's;tax rate is 40%. The new CFO wants to;see how the ROE would be affected if the firm increased its debt ratio to the;maximum consistent with the required TIE;ratio. Assume that sales, operating;costs, assets, the interest rate, and the tax rate would all remain constant. By how much would the ROE change in response;to the change in the capital structure?;a.0.33%;b.0.51%;c.0.82%;d.1.17%;e.1.39%;[xxx]. Ingram Inc;has the following balance sheet;Cash;$10,000;Accounts payable;$30,000;Receivables;50,000;Other current liabilities;20,000;Inventories;150,000;Long-term debt;50,000;Net fixed assets;90,000;Common equity;200,000;Total assets;$300,000;Total liabilities & equity;$300,000;Last year the firm had $15,000 of net income on;$200,000 of sales. However, the new CFO;thinks that inventories are excessive and could be lowered sufficiently to;cause the current ratio toequal the;industry average, 2.5, without affecting either sales or net income. Assume inventories are sold off and not;replaced to get the current ratio to 2.5, and the funds generated are used to;buy back common stock at book value without changing anything else. By how much will the ROE change?;a.4.70%;b.4.96%;c.5.28%;d.5.54%;e.5.91%;Multi-part Problem;The balance sheet and income;statement shown below are for Byrd Inc, and the data are to be used for the;following questions. Note that the firm;has no amortization charges, it does not lease any assets, and none of its debt;must be retired during the next 5 years (notes payable will be rolled over). Assume a 360-day year.;BALANCE SHEET (millions of;dollars);Cash;$ 140.0;Accounts payable;$ 800.0;Accts. receivable;880.0;Notes payable;600.0;Inventories;1,320.0;Accruals;400.0;Total current assets;$2,340.0;Total current liabilities;$1,800.0;Long-term bonds;1,000.0;Total debt;$2,800.0;Common stock;200.0;Retained earnings;1,000.0;Net plant & equip.;1,660.0;Total common equity;$1,200.0;Total assets;$4,000.0;Total liabilities & equity;$4,000.0;INCOME STATEMENT (millions of;dollars);Net sales;$ 6,000.0;Operating costs;5,599.8;Depreciation;100.2;EBIT;$ 300.0;Less: Interest;96.0;EBT;$ 204.0;Less: Taxes;81.6;Net income;$ 122.4;OTHER DATA;Shares outstanding (millions);60.00;Common dividends (millions);$42.8;Interest rate on N/P and long-term bonds;6.0%;Federal plus state income tax rate;40%;Year-end stock price;$30.60;[xxxi].What is the firm's EPS?;a.$2.04;b.$2.11;c.$2.25;d.$2.39;e.$2.50;[xxxii]. What is the firm's current ratio?;a.1.10;b.1.20;c.1.30;d.1.40;e.1.50;[xxxiii]. What is the firm's quick ratio?;a.0.25;b.0.33;c.0.41;d.0.49;e.0.57;[xxxiv]. What is the firm's ROA?;a.2.90%;b.3.06%;c.3.24%;d.3.41%;e.3.65%;[xxxv].What is the firm's ROE?;a. 9.45%;b. 9.63%;c. 9.84%;d.10.20%;e.10.43%;[xxxvi]. What is the firm's BEP?;a.7.50%;b.7.75%;c.8.00%;d.8.25%;e.8.50%;[xxxvii]. What is the firm's TIE?;a.2.82;b.2.98;c.3.13;d.3.30;e.3.49;[xxxviii]. What is the firm's EBITDA coverage?;a.3.51;b.3.69;c.3.88;d.4.04;e.4.17;[xxxix]. What is the firm's days sales outstanding? Assume a 360-day year.;a.51.30 days;b.52.80 days;c.53.90 days;d.54.80 days;e.55.50 days;[xl]. What is the firm's total assets turnover?;a.1.10;b.1.20;c.1.30;d.1.40;e.1.50;[xli]. What is the firm's profit margin?;a.2.04%;b.2.16%;c.2.28%;d.2.40%;e.2.52%;[xlii].What is the firm's debt ratio?;a.60.0%;b.65.0%;c.70.0%;d.75.0%;e.80.0%;[xliii]. What is the firm's equity multiplier?;a.2.67;b.2.84;c.3.00;d.3.16;e.3.33;[xliv].What is the firm's inventory turnover?;a.4.41;b.4.55;c.4.69;d.4.83;e.4.97;[xlv]. What is the firm's dividends per share?;a.$0.31;b.$0.41;c.$0.51;d.$0.61;e.$0.71;[xlvi].What is the firm's cash flow per share?;a.$3.71;b.$3.86;c.$4.01;d.$4.16;e.$4.31;[xlvii]. What is the firm's P/E ratio?;a.10.0;b.12.5;c.15.0;d.17.5;e.20.0;[xlviii]. What is the firm's book value per share?;a.$16.00;b.$17.00;c.$18.00;d.$19.00;e.$20.00;[xlix].What is the firm's market-to-book ratio?;a.1.38;b.1.53;c.1.68;d.1.83;e.1.98;Multiple Choice: Conceptual;[l]. Considered;alone, which of the following would increase a company?s current ratio?;a.An increase in accounts receivable.;b.An increase in accounts payable.;c.An increase in net fixed assets.;d.An increase in notes payable.;e.An increase in accrued liabilities.;[li]. A firm?s;new president wants to strengthen the company?s financial position. Which of the following actions would make it financially;stronger?;a.Increase;accounts payable while holding sales constant.;b.Increase;accounts receivable while holding sales constant.;c.Increase;inventories while holding sales constant.;d.Increase;EBIT while holding sales constant.;e.Increase;notes payable while holding sales constant.;[lii]. If the CEO;of a firm were filling out a fitness report on a division manager (i.e.;?grading? the manager), which of the following situations would be likely to;cause the manager to get a BETTER GRADE?;In all cases, assume that other things are held constant.;a.The;division?s total assets turnover ratio is below the average for other firms in;the industry.;b.The;division?s DSO (days? sales outstanding) is 40, whereas the average for;competitors is 30.;c.The;division?s inventory turnover is 6, whereas the average for competitors is 8.;d.The;division?s debt ratio is above the average for other firms in the industry.;e.The division?s basic earning power ratio is;above the average of other firms in the industry.;[liii].Which of;the following would indicate an improvement in a company?s financial;position, holding other things constant?;a.The;current and quick ratios both decline.;b.The EBITDA;coverage ratio increases.;c.The total;assets turnover decreases.;d.The TIE declines.;e.The DSO;increases.;[liv]. Which of;the following would indicate an improvement in a company?s financial position;holding other things constant?;a.The;current and quick ratios both increase.;b.The EBITDA;coverage ratio declines.;c.The debt;ratio increases.;d.The;inventory and total assets turnover ratios both decline.;e.The profit;margin declines.;[lv]. Which of;the following statements is correct?;a.?Window;dressing? is any action that improves a firm?s fundamental long-run position;and thus increases its intrinsic value.;b.Using some;of the firm?s cash to reduce long-term debt is an example of ?window dressing.?;c.Borrowing;using short-term notes payable and using the proceeds to retire long-term debt;is an example of ?window dressing.? Offering discounts to customers who pay;with cash rather than buy on credit and then using the funds that come in;quicker to purchase additional inventories is an example of ?window dressing.?;d.Offering;discounts to customers who pay with cash rather than buy on credit and then;using the funds that come in quicker to purchase additional inventories is an;example of ?window dressing.?;e.Borrowing;on a long-term basis and using the proceeds to retire short-term debt could be;an example of window dressing.;[lvi]. Which of;the following statements is correct?;a.If a firm;has the highest market/book ratio of any firm in its industry, then, other;things held constant, this suggests that the board of directors should fire the;president.;b.If a firm;has the highest price/earning ratio of any firm in its industry, then, other;things held constant, this suggests that the board of directors should fire the;president.;c.The higher;the market/book ratio, then, other things held constant, the higher one would;expect to find the Market Value Added (MVA).;d.If a firm;has a history of high Economic Value Added (EVA) numbers each year, and if;investors expect this situation to continue, then its market/book ratio and MVA;are likely to be below average.;e.Other;things held constant, the higher a firm?s expected future growth rate, the lower;its P/E ratio is likely to be.;[lvii].Which of;the following statements is correct?;a.Other;things held constant, a reduction in the inventory turnover ratio will increase;the ROE.;b.If a firm;increases its sales while holding its inventories constant, then, other things;held constant, its inventory turnover ratio will decrease.;c.A;reduction in inventories held would have no effect on the current ratio.;d.An;increase in inventories held would have no effect on the current ratio.;e.If a firm;increases its sales while holding its inventories constant, then, other things;held constant, its inventory turnover ratio will increase.;[lviii]. Companies;J and K each reported the same earnings per share (EPS), but Company J?s stock;trades at a higher price. Which of the following statements is correct?;a.Company J must have a higher P/E ratio.;b.Company J must have a higher market-to-book ratio.;c.Company J must be riskier.;d.Company J must have fewer growth opportunities.;e.Company J must pay a lower dividend.;[lix]. Maple Furniture recently issued new;common stock and used the proceeds topay off some of;its short-term notes payable. This;action had no effect on the company?s total assets or operating income.Which of the following effectswould;occur;as a result of this action?;a.The;company?s equity multiplier increased.;b.The;company?s basic earning power ratio increased.;c.The;company?s times interest earned ratio decreased.;d.The;company?s debt ratio increased.;e.The;company?s current ratio increased.;[lx]. Which of;the following statements is CORRECT?;a.A firm;that employs financial leverage will have a higher equity multiplier than an;otherwise identical firm that has no debt in its capital structure.;b.Bond;financing is better than stock financing for investors because income from;bonds is taxed on a more favorable basis than income from stock.;c.The use of;debt financing will tend to lower the basic earning power ratio, other things;held constant.;d.All else;equal, increasing the debt ratio will increase the ROA.;e.If two;firms have identical sales, interest rate paid, operating costs, and assets;but they differ in the way they are financed, the firm with less debt will;generally have the higher expected ROE.;[lxi]. A firm;wants to strengthen its financial position.;Which of the following actions would INCREASE its current ratio?;a.Borrow;using short-term debt and use the proceeds to repay debt that has a maturity of;more than one year.;b.Reduce the;company?s days? sales outstanding ratio to the industry average and use the;resulting cash savings to purchase plant and equipment.;c.Use cash;to increase inventory holdings.;d.Use cash;to repurchase some of the company?s own stock.;e.Issue new;stock and use some of the proceeds to purchase additional inventory and hold;the remainder of the funds received as cash.;[lxii].Which of;the following statements is correct?;a.If a firm;increases its sales while holding its accounts receivable constant, then, other;things held constant, its days? sales outstanding (DSO) will increase.;b.If a firm;increases its sales while holding its accounts receivable constant, then, other;things held constant, its days? sales outstanding will decline.;c.A;reduction in accounts receivable would have no effect on the current ratio, but;it would lead to an increase in the quick ratio.;d.If a;securities analyst saw that a firm?s days? sales outstanding was increasing and;was higher than the industry average and was trending still higher, this would;be interpreted as a sign of strength.;e.There is no relationship between the days?;sales outstanding (DSO) and the average collection period (ACP). These;ratios measure different things.;[lxiii]. A firm;wants to strengthen its financial position.;Which of the following actions would increase its quick ratio?;a.Offer;price reductions along with generous credit terms that (1) enabled the firm to;sell some of its excess inventory and (2) led to an increase in accounts;receivable.;b.Collect;some of its receivables and use the cash generated to increase its inventories.;c.Use some;of its cash to purchase additional inventories.;d.Issue new;common stock and use the proceeds to acquire additional fixed assets.;e.Issue new;common stock and use the proceeds to increase inventories.;[lxiv].Nelson;Automotive is considering issuing new common stock and using the proceeds to;reduce its outstanding debt. The stock;issue would have no effect on total assets, the interest rate Nelson pays;EBIT, or the tax rate. Which of the;following is likely to occur if the company goes ahead with the stock issue?;a.Net income;will decrease.;b.The times;interest earned ratio will decrease.;c.The ROA;will decrease.;d.The tax;bill will increase.;e.Taxable;income will decrease.;[lxv]. Companies;HD and LDare both profitable, and they have;the sametotal assets (TA);Sales (S), return on assets (ROA), and;profit margin (PM). However, CompanyHD;hasthe higher debt ratio.Which of the following statements;is correct?;a.Company HD;has a higher ROE than Company LD.;b.Company HD;has a lower total assets turnover than Company LD.;c.Company HD;has a lower operating income (EBIT) than Company LD.;d.Company HD;has a lower equity multiplier than Company LD.;e.Company HD;has a higher fixed assets turnover than Company B.;[lxvi].Van Buren;Company?s current ratio is 1.9.;Considered alone, which of the following actions would REDUCE the;company?s current ratio?;a.Use cash;to reduce short-term notes payable.;b.Use cash;to reduce accounts payable.;c.Borrow;using short-term notes payable and use the proceeds to reduce long-term debt.;d.Borrow;using short-term notes payable and use the proceeds to reduce accruals.;e.Use cash;to reduce accruals.;[lxvii]. Which of;the following statements is correct?;a.Suppose a firm?s total assets turnover ratio falls from 10% to;9%, but at the same time its profit margin rises from 9% to 10%, and its debt;increases from 40% of total assets to 60%.;Under these conditions, the ROE will decrease.;b.Suppose a firm?s total assets;turnover ratio falls from 10% to 9%, but at the same time its profit margin;rises from 9% to 10%, and its debt increases from 40% of total assets to;60%. Under these conditions, the ROE;will increase.;c.Suppose a firm?s total assets;turnover ratio falls from 10% to 9%, but at the same time its profit margin;rises from 9% to 10%, and its debt increases from 40% of total assets to 60%.;Without additional information, we cannot tell what will happen to the ROE.;d.The;modified Du Pont equation provides information about how operations affect the;ROE, but the equation does include the effects of debt on the ROE.;e.Other things held constant, an increase in the;debt ratio will result in an increase in the profit margin on sales.;[lxviii]. Which of;the following statements is correct?;a.If two;firms differ only in their use of debt?i.e., they have identical assets, sales;operating costs, interest rates on their debt, and tax rates?but one firm has a;higher debt ratio, the firm that uses more debt will have a lower profit margin;on sales.;b.If two;firms differ only in their use of debt?i.e., they have identical assets, sales;operating costs, and tax rates?but one firm has a higher debt ratio, the firm;that uses more debt will have a higher profit margin on sales.;c.A firm?s;use of debt will have no effect on its profit margin on sales.;d.If one;firm has a higher debt ratio than another, we can be certain that the firm with;the higher debt ratio will have the lower TIE;ratio, as that ratio depends entirely on the amount of debt a firm uses.;e.The debt ratio as it is generally calculated;makes an adjustment for the use of assets leased under operating leases, so the;debt ratios of firms that lease different percentages of their assets are still;comparable.

 

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