Suppose Firms a and B Have the Same Amount of Assets,total

question 78

True/False

Suppose Firms A and B have the same amount of assets,total assets are equal to total invested capital,pay the same interest rate on their debt,have the same basic earning power (BEP),finance with only debt and common equity,and have the same tax rate.However,Firm A has a higher debt to capital ratio.If BEP is greater than the interest rate on debt,Firm A will have a higher ROE as a result of its higher debt ratio.

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Definitions:

Sales

The activities involved in selling goods or services directly to consumers or end-users.

Inventory Purchases

The act of buying goods and materials a company intends to sell or use in production, impacting its stock levels and financial state.

Cost of Goods Sold

The direct costs attributable to the production of goods sold by a company, including materials and labor.