solution

Which of the following statements is CORRECT?

a. All else equal, increasing the debt ratio will increase the
ROA.

b. The use of debt financing will tend to lower the basic
earning power ratio, other things held constant.

c. 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.

d. If two firms have identical sales, interest rates paid,
operating costs, and assets, but differ in the way they are
financed, the firm with less debt will generally have the higher
expected ROE.

e. Holding bonds is better than holding stock for investors
because income from bonds is taxed on a more favorable basis than
income from stock