Widget Co and Tools Inc -Which of the Following Statements Could Explain the Difference in Industry

question 25

Multiple Choice

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

• A)Widget uses straight-line depreciation and Tool uses MACRS.
• B)Widget uses LIFO and Tool uses FIFO.
• C)Tool has foreign subsidiaries in countries with much lower tax rates.
• D)Widget has significant amounts of interest income from municipal bonds.

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Definitions:

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