Firms HD and LD Are Identical Except for Their Level

question 60

Multiple Choice

Firms HD and LD are identical except for their level of debt and the interest rates they pay on debt- HD has more debt and pays a higher interest rate on that debt. Based on the data given below, what is the difference between the two firms' ROEs?

• A) 2.18%
• B) 2.29%
• C) 2.41%
• D) 2.54%

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Definitions:

Firefighters

Trained personnel responsible for extinguishing fires, rescuing individuals, and preventing the spread of fire and damage.

Damages

Monetary compensation that a party is ordered to pay to another as restitution for wrong or injury.

Consistency

The characteristic of being coherent, uniform, or performing in a predictable manner over time.

Parallelism

The use of components in a sentence that are grammatically the same; or similar in their construction, sound, meaning, or meter.