Lottadoe and Bigbux Are Two Companies That Are Identical in Every

Multiple Choice

Lottadoe and Bigbux are two companies that are identical in every respect except that Lottadoe uses only equity financing while Bigbux relies heavily on debt financing. Over the past year, the firms had identical net incomes before interest and taxes were taken into account. If this net income was very high, what would it mean for Bigbux?

A) Bigbux would report a higher return on equity than Lottadoe.
B) Bigbux would report a lower return on equity than Lottadoe.
C) Lottadoe would pay less in taxes than Bigbux.
D) Lottadoe would report a lower net income after taxes than Bigbux.