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a. Company HD has a lower equity multiplier.
b. Company HD has more net income.
c. Company HD pays more in taxes.
d. Company HD has a lower ROE.
e. Company HD has a lower times interest earned (TIE) ratio.
3. 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.
4. Muscarella Inc. has the following balance sheet and income statement
data: