Companies HD and LD have identical amounts of assets, operating income (EBIT), tax rates, and business risk. Company HD, however, has a higher debt ratio than LD. Company HD's basic earning power ratio (BEP) exceeds its cost of debt (r). Which of the following statements is CORRECT?a)Company HD has a higher return on assets (ROA) than Company LD.b)Company HD has a higher times interest earned (TIE) ratio than Company LD.c)Company HD has a higher return on equity (ROE) than Company LD, and its risk as measured by the standard deviation of ROE is also higher than LD's.d)The two companies have the same ROE.e)Company HD's ROE would be higher if it had no debt.

Question

25-10-2019
Business

contestada

Companies HD and LD have identical amounts of assets, operating income (EBIT), tax rates, and business risk. Company HD, however, has a higher debt ratio than LD. Company HD's basic earning power ratio (BEP) exceeds its cost of debt (r). Which of the following statements is CORRECT?a)Company HD has a higher return on assets (ROA) than Company LD.b)Company HD has a higher times interest earned (TIE) ratio than Company LD.c)Company HD has a higher return on equity (ROE) than Company LD, and its risk as measured by the standard deviation of ROE is also higher than LD's.d)The two companies have the same ROE.e)Company HD's ROE would be higher if it had no debt.

Respuesta :

Otras preguntas

The weight of Jacob’s backpack is made up of the weight of the contents of the backpack as well as the weight of the backpack itself. Seventy percent of the tot

Which characteristic is true of modern-day monsters? A. They are not born of the human race. B. They find pleasure in being a widely recognized threat to

Which article of the United States Constitution outlines the structure and powers of the executive branch?

How does the absorption and release of energy affect temperature change during a chemical reaction?

Which compound has the smallest percent composition by mass of chlorine?(1) HCl (3) LiCl(2) KCl (4) NaCl

The organelles that produce proteins used within the cell are the _____. mitochondria lysosomes ribosomes centrioles

What role did Julius Caesar play in the decline of the republic and the rise of the empire? If you can, try to explain it in five sentences

which one of the following businesses would be the most difficult to get funding for

What is the solution of the inequality 9 - x^2 < 0? (a) {x | -3 < x < 3} (b) {x | x > 3 or x < -3} (c) {x | x | x > 3} (d) {x | x < -3}

the freedom of working for yourself is necessarily limited by

jepessoa jepessoa · Answer 1 · 2019-10-28T20:10:11+01:00

Answer:

The answer is: C)Company HD has a higher return on equity (ROE) than Company LD, and its risk as measured by the standard deviation of ROE is also higher than LD's.

Explanation:

Both companies have the same EBIT, even though company HD has a higher debt ration than company LD. This can only be explained if HD has a higher return on equity than LD (HD is a more profitable investment), since they are making the same amount of money (same EBIT) with less equity. Since they have less equity, they have larger debts. Then again, company HD will always be a riskier investment since its standard deviation of ROE is higher.