Two Operationally Similar Companies, HD and LD, Have the Same

Multiple Choice

Two operationally similar companies, HD and LD, have the same total assets, operating income (EBIT) , tax rate, and business risk. Company HD, however, has a much higher debt ratio than LD. Also HD's return on invested capital (ROIC)  exceeds its after-tax cost of debt, (1-T) rd. Which of the following statements is CORRECT?

A) hd should have a higher times interest earned (tie) ratio than ld.
B) hd should have a higher return on equity (roe) than ld, but its risk, as measured by the standard deviation of roe, should also be higher than ld's.
C) given that roic > (1-t) rd, hd's stock price must exceed that of ld.
D) given that roic > (1-t) rd, ld's stock price must exceed that of hd.
E) hd should have a higher return on assets (roa) than ld.