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Question
Companies HD and LD have identical tax rates, total assets, and return on invested capital (ROIC), and their ROIC exceeds their after-tax cost of debt, (1-T)rd. However, Company HD has a higher debt ratio and thus more interest expense than Company LD. Which of the following statements is CORRECT?a. Company HD has a lower ROA than Company LD.
b. Company HD has a lower ROE than Company LD.
c. The two companies have the same ROA.
d. The two companies have the same ROE.
e. Company HD has a higher net income than Company LD.
Answer
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