If a firm decreases its operating costs,all else constant,then
A)the profit margin increases while the cash coverage ratio decreases.
B)the return on assets increases while the return on equity decreases.
C)both the return on assets and the return on equity increase.
D)both the profit margin and the equity multiplier increase.
E)the total asset turnover rate decreases while the profit margin increases.

Question

Quizplus · Accepted Answer

Decreasing operating costs would lead to an increase in profitability, which in turn would increase both the return on assets and the return on equity. All else constant, there would be no effect on the cash coverage ratio, equity multiplier or total asset turnover rate. Therefore, the correct answer is option C.

If a Firm Decreases Its Operating Costs,all Else Constant,then