Firms U and L Each Have the Same Amount of Assets,investor-Supplied

question 32

Multiple Choice

Firms U and L each have the same amount of assets,investor-supplied capital,and both have a return on investors' capital (ROIC) of 12%.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 an after-tax cost of 8%.Both firms have positive net income and a 35% tax rate.Which of the following statements is CORRECT?

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

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Definitions:

Creative Self-efficacy

An individual's belief in their own ability to produce new and useful ideas.

Multicultural Experiences

Engagements or interactions which involve or are derived from several different cultures, enhancing understanding and appreciation of diversity.

Unconventional Thinking

A non-traditional or creative approach to problem-solving and idea generation.

Constraints

Limitations or restrictions that affect the course of an action or decision-making process.