Two Operationally Similar Companies, HD and LD, Have the Same

question 92

Multiple Choice

Two operationally similar companies, HD and LD, have the same total assets, operating income (EBIT) , tax rate, and business risk.Company HD, however, has a much higher debt ratio than LD.Also HD's return on invested capital (ROIC) exceeds its after-tax cost of debt, (1-T) r_d.Which of the following statements is CORRECT?

• A) HD should have a higher times interest earned (TIE) ratio than LD.
• B) 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.
• C) Given that ROIC > (1-T) r_d, HD's stock price must exceed that of LD.
• D) Given that ROIC > (1-T) r_d, LD's stock price must exceed that of HD.
• E) HD should have a higher return on assets (ROA) than LD.

Identify traits that are strongly canalized versus those susceptible to environmental influences.

Understand the role of genetics and environment in obesity.

Examine the genetic-environment correlation in influencing children’s development.

Recognize environmental influences and their variability within family contexts.

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Definitions:

Payee

The individual or entity to whom a payment is to be made.

Leap Year

A year consisting of 366 days, with an extra day added to February, occurring every four years to help synchronize the calendar year with the solar year.

Accounts Payable

A liability account tracking amounts owed by a company to suppliers or creditors for goods and services received.