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?

Question

Quizplus · Accepted Answer

Under the stated conditions,HD would have more interest charges,thus lower taxable income and taxes.Thus,a is correct.All of the other statements are incorrect.

Companies HD and LD Have the Same Sales,tax Rate,interest Rate