Dr. Dong, a security analyst, observes the following income statements from two companies, A and B. The two companies operate at the same industry. AB Revenue 500 500 Interest expense 20 30 He understands that A and B uses the same technique to produce and sell the same product targeting the same customer group. Dr. Dong writes in the investment recommendation that company B is less preferred. Do you agree with him? Why? Mostly yes, but he needs to explain the detailed reasons. It could be due to B borrows more and takes more debt. If B is suffering from the short term liquidity problem and long term solvency problem, then this is in fact preferred as B A makes more efficient use of debt than A. It could also be due to B borrows under higher interest rate. This is not a good sign, as B apparently has weaker ability to negotiate with the debt holders a lower interest rate due to its low credit rating. Mostly yes, but he needs to explain the detailed reasons. It could be due to B borrows more and takes more debt. If B is not suffering from the short term liquidity problem and long term solvency problem, then this is in fact preferred as B B makes more efficient use of debt than A. It could also be due to B borrows under higher interest rate. This is not a good sign, as B apparently has weaker ability to negotiate with the debt holders a lower interest rate due to its low credit rating. Mostly yes, but he needs to explain the detailed reasons. It could be due to B borrows more and takes more debt. If B is suffering from the short term liquidity problem and long term solvency problem, then this is in fact preferred as B makes more efficient use of debt than A. It could also be due to B borrows under higher interest rate. This is a good sign, as B apparently has stronger ability to take debt in spite of its low credit rating