HD Corp. and LD Corp. have identical assets, sales, interest rates paid on their debt, tax rates, and EBIT. However, HD uses more debt than LD. Which of the following statements is CORRECT?
A) Without more information, we cannot tell if HD or LD would have a higher or lower net income.
B) HD would have the lower equity multiplier for use in the Du Pont equation.
C) HD would have to pay more in income taxes.
D) HD would have the lower net income as shown on the income statement.
E) HD would have the higher net income as shown on the income statement.

Question

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The Answer of HD Corp. and LD Corp. have identical assets, sales, interest rates paid on their debt, tax rates, and EBIT. However, HD uses more debt than LD. Which of the following statements is CORRECT?
A) Without more information, we cannot tell if HD or LD would have a higher or lower net income.
B) HD would have the lower equity multiplier for use in the Du Pont equation.
C) HD would have to pay more in income taxes.
D) HD would have the lower net income as shown on the income statement.
E) HD would have the higher net income as shown on the income statement.

HD Corp and LD Corp