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jolli1 [7]
3 years ago
14

Companies HD and LD have the same total assets, sales, operating costs, and tax rates, and they pay the same interest rate on th

eir debt. Both firms finance using only debt and common equity, and total assets equal total invested capital. However, company HD has a higher total debt to total capital ratio. Which of the following statements is CORRECT?
a. Company HD has a lower equity multiplier.
b. Company HD has more net income.
c. Company HD pays more in taxes.
d. Company HD has a lower ROE.
e. Company HD has a lower times-interest-earned (TIE) ratio
Business
1 answer:
aliina [53]3 years ago
7 0

Answer:

B) Company HD has more net income.

Explanation:

The total debt to capital ratio is calculated by dividing total liabilities by the sum of total shareholders' equity + total debt:

  • debt to capital ratio = total debt / (total debt + total equity)

Since company HD uses more debt to finance its operations, its net income will be lower since it has to pay more interests, but its ROE will be higher since equity is much lower also. Companies that use a lot of financial leverage are more risky but at the same time can generate higher returns to their owners.

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2 years ago
One of the workers in Henry's department submitted his two weeks' notice so Henry needs to hire a replacement. The HR department
cupoosta [38]

Answer:

procedure

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3 0
3 years ago
A firm has a net profit/pretax profit ratio of .6, a leverage ratio of 1.5, a pretax profit/EBIT of .7, an asset turnover ratio
Alenkinab [10]

Answer:

The answer is A.15.12%.

Explanation:

Please find the below for explanation and calculations:

We have EBIT = Pretax profit /0.7 = Net profit / (0.6 x 0.7) = 0.42 x Net Profit

=> Net profit / Sales = Profit margin =  0.42 x EBIT/ Sales = 0.42 x Return-on-sales = 2.52%;

Leverage ratio = Asset/ Equity = 1.5;

Sales / Asset = asset turn over ratio = 4;

Apply the Dupont model we have:

Return on Equity = Leverage ratio x Profit Margin x Leverage ratio = 2.52% x 1.5 x 4 = 15.12%.

Thus, the answer is A. 15.12%.

6 0
3 years ago
Which of the following is not deductible in 2018? a.Expenses incurred associated with investments in stocks and bonds. b.Allowab
Masja [62]

Answer:

b. Allowable hobby expenses in excess of hobby income.

Explanation:

Allowable hobby expenses in excess of hobby income is not deductible in 2018.

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3 years ago
The difference between the price of a nominal bond paying off $1 in nominal terms tomorrow and the price of a real bond paying o
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