>> Financial Management
Two identical firms, A and B, have the same revenue of $10 million and equal variable and fixed costs for the current year. At the start of the year, they both owned $20,000,000 in equipment which follows a depreciation schedule of 5% per year. Over the year A decided not to replace the depreciated equipment, while B did. They otherwise acted equivalently. Which of the following is a correct implication?
A’s interest coverage ratio over the year exceeded B’s.
B’s interest coverage ratio over the year exceeded A’s.
B paid less tax than A
B will have less cash than A at year’s end