A company reports net income of $250,000. The return on assets for the year is 20%. What is the company's average total assets for the year?

A) $1,250,000

B) $1,000,000

C) $1,500,000

D) $250,000

Answer: A

Financial leverage is best measured by which of the following ratios?

A) The debt to equity ratio.

B) The return on equity ratio.

C) The times interest earned ratio.

D) The return on assets ratio.

Answer: A

Which of the following is true regarding a company assuming more debt?

A) Assuming more debt is always bad for the company.

B) Assuming more debt is always good for the company.

C) Assuming more debt can be good for the company as long as they earn a return in excess of the rate charged on the borrowed funds.

D) Assuming more debt reduces leverage.

Answer: C