Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Firms U and L both have a return on invested capital (ROIC) of 12% and each has the same amount of assets. Firm U is

Firms U and L both have a return on invested capital (ROIC) of 12% and each has the same amount of assets. Firm U is unleveraged, i.e., it is 100% equity financed, while Firm L is financed with 50% debt and 50% equity. Firm L's debt has an after-tax cost of 4.8%. Both firms have positive net income.

Which of the following statements is CORRECT?

a. Firm L has a lower ROA than Firm U.
b. Firm L has the higher times interest earned (TIE) ratio.
c. Firm L has a lower ROE than Firm U.
d. The two companies have the same times interest earned (TIE) ratio.
e. Firm L has a higher EBIT than Firm U.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Renewable Energy Finance Funding The Future Of Energy

Authors: Charles W Donovan

2nd Edition

1786348594, 9781786348593

More Books

Students also viewed these Finance questions

Question

Draw a schematic diagram of I.C. engines and name the parts.

Answered: 1 week ago

Question

How might HR technology affect the various HR functions?

Answered: 1 week ago