Companies HD and LD have the same sales, tax rate, interest rate on their debt, total...

Companies HD and LD have the same sales, tax rate, interest rate on their debt, total assets, and basic earning power. Both firms finance using only debt and common equity, and total assets equal total invested capital. Both companies have positive net incomes. Company HD has a higher total debt to total capital ratio and therefore a higher interest expense. Which of the following statements is CORRECT?

a. Company HD has a higher times-interest-earned (TIE) ratio.

b. Company HD has more net income.

c. Company HD has a lower equity multiplier.

d. Company HD has a higher ROA.

e. Company HD pays less in taxes.

Solutions

Expert Solution

e. Company HD pays less in taxes.

this is because of higher interet costs making less income to pay for tax

jeff jeffy answered 2 years ago

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