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:

Income-Transfer Payments

Transfers of money from the government to individuals without any expectation of work or goods and services in return, often aimed at redistributing wealth.

Government Purchases

Expenditures by government entities on goods and services for current use to directly satisfy individual or collective needs.

Military Hardware

Physical, tangible equipment and weapons used by armed forces, such as tanks, aircraft, and ships.