1. Profitability Ratios PJ's Ice Cream Parlor has asked you to help piece together financial information on the firm for the most current year. Managers give you the following information: sales = $50 million, total debt = $20 million, debt ratio = 50%, ROE = 12%. Using this information, what is PJ's ROA? (Do not round intermediate steps.)
A) 6.00%
B) 4.00%
C) 12.00%
D) 10.00%
2. Stock A moves up when the portfolio moves up and down when the portfolio moves down. Stock B moves down when the portfolio moves up and up when the portfolio moves down. A and B move up and down about the same amount.
a. A's risk can be diversified away.
b. A is risky because it adds risk to the portfolio, B is not risky because it reduces the portfolio's risk.
c. A has some of the personality of B.
d. A and B are equally risky in a portfolio sense.