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

Question

Quizplus · Accepted Answer

Since Company HD has a higher interest expense due to a higher total debt to total invested capital ratio, it will have a lower times-interest-earned (TIE) ratio, which measures the ability to meet interest obligations.

Companies HD and LD Have the Same Tax Rate,sales,total Assets,and