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Which of the following companies should receive the higher credit rating? Why? Company A: Total debt is 30% of total assets All debt of collateralized

Which of the following companies should receive the higher credit rating? Why?

Company A:

Total debt is 30% of total assets

All debt of collateralized by equipment

Interest rates are fixed

Firm sales are cyclical and its profit margins are generally small

Company B

Total debt is 50% of total assets

The company experiences steady demand for its products regardless of the business cycle

All debt is unsecured

Firm profit margins are relatively high

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