Companies HD and LD have identical tax rates, total assets, and return on invested capital (ROIC), and their ROIC exceeds their after-tax cost of debt, (1-T) rd. However, Company HD has a higher debt ratio and thus more interest expense than Company LD. Which of the following statements is CORRECT?
A. Company HD has a lower ROA than Company LD.
B. Company HD has a lower ROE than Company LD.
C. The two companies have the same ROA.
D. The two companies have the same ROE.
E. Company HD has a higher net income than Company LD.
Answer: A
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