Companies HD and LD Have Identical Amounts of Assets, Investor-Supplied

question 34

Multiple Choice

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

• A) Company HD has a higher return on assets (ROA) than Company LD.
• B) Company HD has a higher times interest earned (TIE) ratio than Company LD.
• C) Company HD has a higher return on equity (ROE) than Company LD, and its risk as measured by the standard deviation of ROE is also higher than LD's.
• D) The two companies have the same ROE.
• E) Company HD's ROE would be higher if it had no debt.

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Definitions:

Supply Curves

Graphical representations showing the relationship between the price of a good and the amount of the good that suppliers are willing to sell.

Price Elasticity

A measure of how much the quantity demanded of a good responds to a change in its price, indicating its sensitivity to price changes.

Specific Excise Tax

A tax levied on a particular good or service, usually based on a fixed amount per unit, such as per liter of alcohol or per pack of cigarettes.

Unitary

A term in economics used to describe a situation where a change in one factor leads to a proportionate change in another factor.