Suppose Firms a and B Have the Same Amount of Assets

question 93

True/False

Suppose Firms A and B have the same amount of assets, pay the same interest rate on their debt, have the same basic earning power (BEP), and have the same tax rate.However, Firm A has a higher debt ratio.If BEP is greater than the interest rate on debt, Firm A will have a higher ROE as a result of its higher debt ratio.

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Definitions:

Deregulation

The process of removing government restrictions and regulations in a sector to allow for more competition and efficiency in the market.

Pharmaceuticals

Products developed by the pharmaceutical industry for the purpose of diagnosing, treating, curing, or preventing diseases.

Interstate Trucking

The transportation of goods across state boundaries within a country, often subject to federal regulations and guidelines.

Earmarks

Provisions within legislation that allocate funds for specific projects, often bypassing the normal allocation process.