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