Violet Shades and Raindew are two companies that are identical in every area except that Violet Shades uses only equity financing while Raindew relies heavily on debt financing. Over the past year, the firms had identical earnings before interest and taxes. If the firms faced a rough year with very low earnings: 

options: 

a) Raindew would report a higher net taxable income than Violet Shades. 

b) Violet Shades would be required to pay a higher dividend than Raindew, thus reducing retained earnings. 

c) Violet Shades would report a higher return on equity than Raindew. 

d) Raindew would be able to skip its interest payments if paying them would cause its net income to be negative

Answer rating: 100% (QA)

The detailed answer for the above question is provided below The correct option is c Viol... View the full answer