Companies HD and LD Have the Same Sales,tax Rate,interest Rate

question 106

Multiple Choice

Companies HD and LD have the same sales,tax rate,interest rate on their debt,total assets,and basic earning power.Both firms finance using only debt and common equity,and total assets equal total invested capital.Both companies have positive net incomes.Company HD has a higher total debt to total capital ratio and therefore a higher interest expense.Which of the following statements is CORRECT?

• A) Company HD pays less in taxes.
• B) Company HD has a lower equity multiplier.
• C) Company HD has a higher ROA.
• D) Company HD has a higher times-interest-earned (TIE)ratio.
• E) Company HD has more net income.

---

Definitions:

Outstanding Checks

Outstanding checks are checks that have been written and recorded in the issuing company's ledger but have not yet been cashed or cleared by the bank.

Deposits In Transit

Refers to money that has been received and recorded by a business but has not yet been recognized by the bank by the end of the accounting period.

Outstanding Checks

Checks that have been written and recorded in a company's financial records but have not yet been cashed or cleared by the bank.

Deposits In Transit

Funds that have been deposited by a company but not yet credited to its bank account.