Firms U and L Both Have a Basic Earning Power

question 36

Multiple Choice

Firms U and L both have a basic earning power ratio of 20% and each has the same amount of assets.Firm U is unleveraged,i.e.,it is 100% equity financed,while Firm L is financed with 50% debt and 50% equity.Firm L's debt has a before-tax cost of 8%.Both firms have positive net income.Which of the following statements is CORRECT?

• A) Firm L has a lower ROA than Firm U.
• B) Firm L has a lower ROE than Firm U.
• C) Firm L has the higher times interest earned (TIE) ratio.
• D) Firm L has a higher EBIT than Firm U.
• E) The two companies have the same times interest earned (TIE) ratio.

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Definitions:

Medication Administration Record

A document used by healthcare professionals to record all of the drugs and medications administered to a patient.

Prescriber

A healthcare professional authorized to prescribe medications, treatments, or therapies to patients.

Medication Error

Mistakes in prescribing, dispensing, or administering medication that lead to, or have the potential to lead to harm to the patient.

Normal Saline

A sterile solution of sodium chloride in water, mimicking the salt concentration of the body, commonly used for IV infusions and wound care.