Companies HD and LD Have Identical Amounts of Assets, Investor-Supplied

Multiple Choice

Companies HD and LD have identical amounts of assets, investor-supplied capital, operating income (EBIT) , tax rates, and business risk. Company HD, however, has a higher debt ratio than LD. Company HD's return on investors' capital (ROIC) exceeds its after-tax cost of debt, rd(1 - T) . Which of the following statements is CORRECT?

A) Company HD has a higher return on assets (ROA) than Company LD.
B) Company HD has a higher times interest earned (TIE) ratio than Company LD.
C) Company HD has a higher return on equity (ROE) than Company LD, and its risk as measured by the standard deviation of ROE is also higher than LD's.
D) The two companies have the same ROE.
E) Company HD's ROE would be higher if it had no debt.