Company a Is Financed with 90 Percent Debt, Whereas Company

Multiple Choice

Company A is financed with 90 percent debt, whereas Company B, which has the same amount of total assets, is financed entirely with equity. Both companies have a marginal tax rate of 35 percent. Which of the following statements is most correct?

A) If the two companies have the same basic earning power (BEP) , Company B will have a higher return on assets.
B) If the two companies have the same return on assets, Company B will have a higher return on equity.
C) If the two companies have the same level of sales and basic earning power (BEP) , Company B will have a lower profit margin.
D) All of the answers above are correct.
E) None of the answers above is correct.