Company R and Company S Each Have the Same Operating

question 87

Multiple Choice

Company R and Company S each have the same operating income (EBIT) and basic earning power (BEP) ratio. Company S, however, has a lower times-interest-earned (TIE) ratio. Which of the following statements is most correct?

• A) Company S has a higher ROA.
• B) Company S has a higher net income.
• C) Company S has a higher interest expense.
• D) Statements a and b are correct.
• E) Statements a, b, and c are correct.

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Definitions:

Net Cash Inflows

The difference between all cash inflows and outflows within a specific period, reflecting the company’s cash position.

Working Capital

The measure of a company's short-term liquidity, calculated as current assets minus current liabilities.

Salvage Value

The approximated financial value of an asset at the termination of its usability.

Required Rate of Return

The minimum percentage rate of return on an investment that a person or company deems acceptable, considering the risks involved.