Widget Co and Tools Inc -Widget Has a Higher EBIT/Revenue but Lower Net Operating Profit

question 58

Multiple Choice

Widget Co. and Tools Inc. both operate in the same industry. They are capital-intensive companies producing widgets. Below are selected data:
$\begin{array}{lll}&\text { Widget Co. }&\text { Tools Inc. }\\\text { Net operating assets/common equity } & 1.37 & 1.53 \\\text { Net operating profit margin } & 19 \% & 21 \% \\\text { Income tax rate } & 47 \% & 28 \% \\\text { Revenues/net operating assets } & 0.81 & 0.61 \\\text { EBIT/revenues } & 38 \% & 32 \%\end{array}$
-Widget has a higher EBIT/Revenue but lower net operating profit margin than Tool. Which of the following statements could explain this better as a percentage of sales?

• A)Widget has greater interest expense and taxes.
• B)Widget has greater interest expense but lower taxes.
• C)Widget has lower interest expense but higher taxes.
• D)Widget has lower interest expense and taxes.

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