Reeves Corporation Forecasts That Its Operating Income (EBIT) and Total

Multiple Choice

Reeves Corporation forecasts that its operating income (EBIT) and total assets will remain the same as last year, but that the company's debt ratio will increase this year. What can you conclude about the company's financial ratios? (Assume that there will be no change in the company's tax rate.)

A) The company's basic earning power (BEP) will fall.
B) The company's return on assets (ROA) will fall.
C) The company's equity multiplier (EM) will increase.
D) All of the answers above are correct.
E) Answers b and c are correct.