HD Corp.and LD Corp.have identical assets,sales,interest rates paid on their debt,tax rates,and EBIT.However,HD uses more debt than LD.Which of the following statements is correct?
A)HD would have the lower equity multiplier for use in the Du Pont equation.
B)HD would have to pay more in income taxes.
C)HD would have the lower net income as shown on the income statement.
D)HD would have the higher net income as shown on the income statement.

Question

Quizplus · Accepted Answer

Since HD uses more debt than LD, it would have higher interest expenses, reducing its net income compared to LD, assuming all other factors are identical.

HD CorpAnd LD Corp