35.Supposea firmwantstomaintaina specificTIEratio.Ifthefirmknowsthelevelof its debt,theinterestrateitwill payon thatdebtandtheapplicabletaxrate,thefirmcanthencalculatetheearningslevelrequiredtomaintainits targetTIEratio. a.True b.False True ANSWER: Medium DIFFICULTY: TIEratio TOPICS: 36.Thefixedchargecoverageratiorecognizesthatfirmsoftenleaseequipmentundercontractandthus,somefirms mustmeetmorethanjusttheirscheduledinterestpaymentsoutofearnings.Therefore,thefixedchargecoverageis moreinclusivethanthe TIEratio. a.True b.False True ANSWER: Medium DIFFICULTY: Fixedchargecoverageratio TOPICS: 37.Ifsalesdecreaseandfinancialleverageincreases,wecansaywithcertaintythattheprofitmarginonsaleswill decrease. a.True b.False False ANSWER: Medium DIFFICULTY: Profitmarginandleverage TOPICS:
35.Supposea firmwantstomaintaina specificTIEratio.Ifthefirmknowsthelevelof its debt,theinterestrateitwill payon thatdebtandtheapplicabletaxrate,thefirmcanthencalculatetheearningslevelrequiredtomaintainits targetTIEratio. a.True b.False ANSWER: True DIFFICULTY: Medium TOPICS: TIEratio 36.Thefixedchargecoverageratiorecognizesthatfirmsoftenleaseequipmentundercontractandthus,somefirms mustmeetmorethanjusttheirscheduledinterestpaymentsoutofearnings.Therefore,thefixedchargecoverageis moreinclusivethanthe TIEratio. a.True b.False ANSWER: True DIFFICULTY: Medium TOPICS: Fixedchargecoverageratio 37.Ifsalesdecreaseandfinancialleverageincreases,wecansaywithcertaintythattheprofitmarginonsaleswill decrease. a.True b.False ANSWER: False DIFFICULTY: Medium TOPICS: Profitmarginandleverage