Answer:
A) company HD pays less in Tax
Explanation:
Because interest is deducted before tax in income statement. Higher interest means less Earning before tax, and less amount of Tax be deducted.
HD and LD both have same Earning before interest and tax.
Let suppose both have EBIT of $1000,
Not HD has interest expense of 150, and LD has interest expense of $100
Now HD Earning before tax would be 850, and LD EBT would be 900.
Let's say tax is 40%
so,
HD tax would be 850*0.4=340
LD tax would be 900*0.4=360
So, HD pays higher interest, it benefit company in paying lower tax amount. bacause interest is tax saving.
HD saves $20 in this hypothetical example.