Company a and Company B Have the Same Total Assets

question 21

Multiple Choice

Company A and Company B have the same total assets, operating income (EBIT) , tax rate, and business risk. Company A, however, has a much higher debt ratio than Company B. Company A's basic earning power (BEP) exceeds its cost of debt financing (rd) . Which of the following statements is most correct?

• A) Company A has a higher return on assets (ROA) than Company B.
• B) Company A has a higher times interest earned (TIE) ratio than Company B.
• C) Company A has a higher return on equity (ROE) than Company B, and its risk, as measured by the standard deviation of ROE, is also higher than Company B's.
• D) Statements b and c are correct.
• E) All of the statements above are correct.

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Definitions:

Sympathetic

Refers to the part of the autonomic nervous system that typically prepares the body for action and stress responses, often described as the "fight or flight" system.

Parasympathetic Nervous Systems

A division of the autonomic nervous system that conserves energy by slowing the heart rate and increasing intestinal and glandular activity.

Sensory Input

Information received by the body's sensory systems, such as sight, sound, touch, taste, and smell, which is then processed by the brain.

Motor Control

The method through which humans and animals employ their brain and nervous system to initiate and manage the movements and limbs necessary for executing a motor skill.