Which one of the following is NOT an advantage of using ROE as a goal? A....

Which one of the following is NOT an advantage of using ROE as a goal?

A. ROE is highly correlated with shareholder wealth maximisation.

B. ROE and the DuPont analysis allow management to break down the performance and identify areas of strengths and weaknesses.

C. ROE does not consider risk.

D. All of the above are advantages of using ROE as a goal.

Expert Solution

c) ROE does not consider risk.

Small explanation:

ROE shows how the firm is able to manage shareholder’s fund in business to generate the profit which shows true picture of shareholders wealth. ROE is shown as percentage. It shows how much money company is able to generate from shareholder’s money, higher the ROE, Company is managing the fund very efficiently in its operations. So, goal of shareholder’s wealth maximization is useful in ROE.

Formula: Net Income/ shareholders equity.

DuPont analysis breaks down ROE in three different areas net profit, financial leverage and assets turnover, so it is useful to know strengths and weaknesses in each of this area. Which is also useful in improvement of ROE.

Not considering risk is not at all the advantage in ROE it cannot used as goal. Risk is always associated with returns. Firm should always try to achieve higher ROE with stable rate of risk, and the ROE of a firm must be higher comparing to other investment alternatives which carries low risk. So risk factor must not be ignored. ROE is always related to the associated risk level with the particular investment. So, “ROE does not consider risk” is not advantage of using as a goal.

jeff jeffy answered 1 year ago

Which one of the following is not one of the components into which ROE is normally...

Which one of the following is not one of the components into which ROE is normally decomposed? Return on Sales Asset Turnover Rate Dividend Retention Rate Financial Leverage

A major advantage of using the maximization of shareholder wealth as the primary goal of the...

A major advantage of using the maximization of shareholder wealth as the primary goal of the firm is that this goal considers the timing and the risk of the expected benefits to be received the investor's consumption utility the value of closely held partnerships all the above

Which of the following is not an advantage of using an internal management approach for the...

Which of the following is not an advantage of using an internal management approach for the firm’s short-term investment portfolio? Select one: a. Less fraud b. Increased likelihood of incentive alignment c. Control d. Guaranteed expertise

Which of the following is not an advantage of incorporation? Select one: a. There may be...

Which of the following is not an advantage of incorporation? Select one: a. There may be tax advantages b. Shareholders can veto decisions of directors. c. Shareholders owe no duty to the corporation. d. Shares are easily transferred. e. Shareholders are not liable for debts of the corporation. Which of the following is false with respect to methods of carrying on a business? Select one: a. A ‘society’ must be for a non-profit purpose. b. Unlimited liability means that an...

Which, if any, of the following is an advantage of using the simplified method for determining...

Which, if any, of the following is an advantage of using the simplified method for determining the office use of a home deduction compared to using the regular method? a. No depreciation on computer equipment used in the office has to be computed using the simplified method. b. The exclusive use requirement does not have to be met if the simplified method is used. c. The simplified method allows the taxpayer to avoid issues that arise in allocating expenses of...

Which of the following is not an advantage of using a market system to allocate goods...

Which of the following is not an advantage of using a market system to allocate goods and services? a. Marginal decision-making results in mutual advantage for both parties in a transaction. b. The desire to maximize returns produces impersonal and non-biased transactions. c. Competitive markets provide buyers the best product at the lowest price. d. None—all are advantages.

Which of the following is considered to be an advantage of using both nonfinancial and financial...

Which of the following is considered to be an advantage of using both nonfinancial and financial information in the balanced scorecard? Nonfinancial information is most helpful in analyzing a company's past performance, while financial information is most useful in evaluating potential future performance. Nonfinancial information provides the short-term perspective while financial information provides the long-term perspective of performance. Nonfinancial information reflects the company's current and potential competitive advantage, while financial information tends to focus on a firm's achieved financial performance....

Which one of the following best states the primary goal of stockholders?

Which one of the following best states the primary goal of stockholders?A. maximize current dividends per shareB. maximize the current value per shareC. increase cash flow and avoid financial distressD. minimize operational costs while maximizing firm efficiencyE. maintain steady growth while increasing current profits

Which of the following is an advantage of using local newspapers for advertising? This medium allows...

Which of the following is an advantage of using local newspapers for advertising? This medium allows an organization to target skill levels very well. It is a relatively inexpensive means of reaching many people within a specified geographic area who are currently looking for work. Classified ads are usually read by many people who are either over- or underqualified for the position. This is a better medium compared to others for luring people away from their current employers. Newspapers are...

Which of the following is not an advantage of a company using equity rather than debt...

Which of the following is not an advantage of a company using equity rather than debt to finance a project? A. Interest always takes more cash than does paying dividends. B. Dividends do not need to be paid. C. Equity does not need to be repaid whereas debt does. D. Interest and Dividends are tax deductible. A note of caution in interpreting the debt ratio is that A. all debt decreases liquidity ratios. B. financing arrangements, such as leases, may...

Question