Company D Has a 50% Debt Ratio,whereas Company E Has

question 13

Multiple Choice

Company D has a 50% debt ratio,whereas Company E has no debt financing.The two companies have the same level of sales and the same degree of operating leverage.Which of the following statements is most CORRECT?

• A)If sales increase 10% for both companies, then Company D will have a larger percentage increase in its net income.
• B)If sales increase 10% for both companies, then Company D will have a larger percentage increase in its operating income (EBIT).
• C)If EBIT increases 10% for both companies, then Company D's net income will rise by more than 10%, while Company E's net income will rise by less than 10%.
• D)Company E has a higher degree of financial leverage.
• E)The two companies have the same degree of total leverage.

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Definitions:

Political Setbacks

Events or developments that hinder or reverse the progress of a political agenda, campaign, or the career of political figures.

New Deal

An array of measures such as programs, public construction efforts, fiscal changes, and rules implemented in the United States during the 1930s by President Franklin D. Roosevelt to address the Great Depression.

National Recovery Administration

A New Deal agency established in 1933 to combat the Great Depression by setting business codes and labor standards.

Great Depression

A severe worldwide economic depression that took place mostly during the 1930s, beginning in the United States.