Companies HD and LD have the same sales, tax rate, interest rate on their debt, total assets, and basic earning power. Both firms finance using only debt and common equity, and total assets equal total invested capital. Both companies have positive net incomes. Company HD has a higher total debt to total capital ratio and therefore a higher interest expense. Which of the following statements is CORRECT?
A. Company HD pays less in taxes.
B. Company HD has a lower equity multiplier.
C. Company HD has a higher ROA.
D. Company HD has a higher times-interest-earned (TIE) ratio.
E. Company HD has more net income.
Answer: A
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