HD CorpAnd LD Corp

question 35

Multiple Choice

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

• A)HD would have the lower equity multiplier for use in the Du Pont equation.
• B)HD would have to pay more in income taxes.
• C)HD would have the lower net income as shown on the income statement.
• D)HD would have the higher net income as shown on the income statement.

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Definitions:

Decisions

The process of making choices or conclusions based on available information or reasoning.

Temporal Discounting

The tendency to value immediate rewards more highly than future rewards.

Preference

An individual's choice or predilection towards certain ideas, objects, or outcomes over others.

Error Management Theory

A theory suggesting that humans and other animals have evolved biases in judgement and decision-making processes to avoid more costly errors.