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.

Comprehend the key behaviors necessary for effective goal setting and overcoming obstacles in achieving goals.

Appreciate the importance of positive thinking, responsibility, starting small, and perseverance in personal development and goal achievement.

Identify the role of ethical guidelines and principles in enhancing employee empowerment and fostering an ethical corporate culture.

Understand the process and benefits of systematically setting goals for balancing personal and professional life.

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Definitions:

Sales

The activities involved in selling goods or services to customers, including the negotiation of sales agreements and the collection of revenue.

Credit Memo

A document issued to a purchaser by a vendor to reduce the amount that the purchaser owes, often as a result of a return or refund.

Gross Profit

The difference between the revenue earned from sales and the cost of goods sold, not accounting for other expenses.

Inventory Shrinkage

Loss of products between purchase from a supplier and sale, often due to theft, damage, or errors.