Companies HD and LD Have the Same Total Assets, Total

question 78

Multiple Choice

Companies HD and LD have the same total assets, total investor-supplied capital, operating income Which of the following statements is CORRECT?

• A) HD should have a higher return on assets (ROA) than LD.
• B) HD should have a higher times interest earned (TIE) ratio than LD.
• C) HD should have a higher return on equity (ROE) than LD, but its risk, as measured by the standard deviation of ROE, should also be higher than LD's.
• D) Given that ROIC > rd(1 - T), HD's stock price must exceed that of LD.
• E) Given that ROIC > rd(1 - T), LD's stock price must exceed that of HD.

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Definitions:

Direct Write-Off Method

An accounting method used to recognize bad debts at the point when specific accounts are deemed uncollectible, directly impacting the income statement.

Allowance Method

An accounting technique used to manage accounts receivable and bad debt by estimating uncollectible accounts at the end of each period.

Write Off

The accounting action of recognizing that an asset has reduced in value and reporting its loss.

Customer's Bill

A statement issued to a customer, outlining charges for goods or services provided.