Firms HD and LD Are Identical Except for Their Use

question 80

Multiple Choice

Firms HD and LD are identical except for their use of debt and the interest rates they pay⎯HD has more debt and thus must pay a higher interest rate.Based on the data given below,how much higher or lower will HD's ROE be versus that of LD,i.e.,what is ROE_HD − ROE_LD?

• A)5.41%
• B)5.69%
• C)5.99%
• D)6.29%
• E)6.61%

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Definitions:

Cost of Goods Sold

An accounting term for the direct expenses related to producing the goods sold by a company, including materials and labor.