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

Question

Quizplus · Accepted Answer

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

Companies Heidee and Leaudy Have the Same Sales, Tax Rate