Companies Heidee and Leaudy Have the Same Total Assets, Sales

question 12

Multiple Choice

Companies Heidee and Leaudy have the same total assets, sales, operating costs, and tax rates, and they pay the same interest rate on their debt.However, company Heidee has a higher debt ratio.Which of the following statements is CORRECT?

• A) If the interest rate the companies pay on their debt is less than their basic earning power (BEP), then Company Heidee will have the higher ROE.
• B) Given this information, Leaudy must have the higher ROE.
• C) Company Leaudy has a higher basic earning power ratio (BEP).
• D) Company Heidee has a higher basic earning power ratio (BEP).
• E) If the interest rate the companies pay on their debt is more than their basic earning power (BEP), then Company Heidee will have the higher ROE.

---

Definitions:

Prisoner's Dilemma

A scenario in game theory where two individuals act in their own interest but could achieve a better outcome through cooperation.

Social Psychologists

Scientists who study how people's thoughts, feelings, and behaviors are influenced by the actual or imagined presence of others.

Cooperate

To work together towards a common goal or objective, often requiring compromise and teamwork.

Political Views

Refers to an individual's ideas, beliefs, or opinions about political subjects, including governance, policies, and ideologies.