Companies HD and LD have the same total assets, sales, operating costs, and tax rates, and they pay the same interest rate on their debt.
However, company HD has a higher debt ratio. Which of the following statements is CORRECT?
A) Given this information, LD must have the higher ROE.
B) Company LD has a higher basic earning power ratio (BEP) .
C) Company HD has a higher basic earning power ratio (BEP) .
D) If the interest rate the companies pay on their debt is more than their basic earning power (BEP) , then Company HD will have the
Higher ROE.
E) If the interest rate the companies pay on their debt is less than their basic earning power (BEP) , then Company HD will have the
Higher ROE.
Correct Answer:
Verified
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