Main driver of Company C’s higher ROE compared to A and B is:
Answer Choices:
Higher total asset turnover
Higher profit margin
Greater use of debt financing
Answer: Greater use of debt financing
Low barriers to entry for Northern Services Inc. means:
Answer Choices:
Irrelevant for performance
Increased risk of competition
Decreased risk of competition
Answer: Increased risk of competition
Companies with high R&D expenses tend to have:
Answer Choices:
Low P/E ratios
High P/E ratios
Answer: High P/E ratios
Can a company have a negative P/E ratio?
Answer Choices:
Yes
No
Answer: Yes
If manager bonuses are based on ROE, which project will they likely choose?
Answer Choices:
Project X: 35% ROE, high investment, high cash flow
Project Y: 40% ROE, small investment, low cash flow
Answer: Project Y: 40% ROE, small investment, low cash flow
If a firm increases future expected ROE, its stock price will:
Answer Choices:
Decrease
Increase
Stay the same
Answer: Increase
If operating margin increases but profit margin decreases, it might mean:
Answer Choices:
The company paid more in taxes or interest
The company earned more net income
The company is issuing stock
Answer: The company paid more in taxes or interest
What can explain Cute Camel’s falling price-to-cash-flow ratio?
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Investors expect higher cash flow
Investors expect lower cash flow
Company is issuing debt
Answer: Investors expect lower cash flow
The U.S. tax structure encourages firms to use:
Answer Choices:
More equity
More debt
Only preferred stock
Answer: More debt
What does a declining debt-to-equity ratio usually imply?
Answer Choices:
Improved creditworthiness
Declined creditworthiness
Answer: Improved creditworthiness
A higher operating margin than the industry average suggests:
Answer Choices:
Higher pricing or lower costs
Higher debt
Inefficiency
Answer: Higher pricing or lower costs