Heidee Corp

question 21

Multiple Choice

Heidee Corp. and Leaudy Corp. have identical assets, sales, interest rates paid on their debt, tax rates, and EBIT. However, Heidee uses more debt than Leaudy. Which of the following statements is CORRECT?

• A) heidee would have the higher net income as shown on the income statement.
• B) without more information, we cannot tell if heidee or leaudy would have a higher or lower net income.
• C) heidee would have the lower equity multiplier for use in the dupont equation.
• D) heidee would have to pay more in income taxes.
• E) heidee would have the lower net income as shown on the income statement.

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Definitions:

Federal Income Tax

A tax levied by the United States federal government on the annual earnings of individuals, corporations, trusts, and other legal entities.

Withheld

The portion of an employee's income that an employer retains as mandated by law or agreement, typically for taxes or other deductions.

Matched by Employer

A benefit where an employer matches the contributions their employees make to a retirement plan, up to a certain percentage.

Installment Note Payable

A debt instrument that requires a series of payments over a specified period until the full amount is paid off.