Question 11.

Companies Heidee and Leaudy have the same sales, tax rate, interest rate on their debt, total assets, and basic earning power. Both companies have positive net incomes. Company Heidee has a higher debt ratio and, therefore, a higher interest expense. Which of the following statements is CORRECT? Rationalize your selection.

a. Company Heidee has more net income.

b. Company Heidee pays less in taxes.

c. Company Heidee has a lower equity multiplier.

d. Company Heidee has a higher ROA.

e. Company Heidee has a higher times interest earned (TIE) ratio.