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) Company LD has a higher basic earning power ratio (BEP) than Company HD.
B) Company HD has a higher basic earning power ratio (BEP) than Company LD.
C) 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.
D) 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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