Companies HD and LD have the same tax rate, sales, total assets, and basic earning power. Both companies have positive net incomes. Company HD has a higher debt ratio and, therefore, a higher interest expense. Which of the following statements is CORRECT?

Question

Quizplus · Accepted Answer

Since Company HD has a higher debt ratio, it has higher interest expenses, which reduces its times-interest-earned (TIE) ratio compared to Company LD.

Companies HD and LD Have the Same Tax Rate, Sales