Two firms, Sunny Inc, and Rainy Inc, are alike in every way. They sell

Two firms, Sunny Inc, and Rainy Inc, are alike in every way. They sell the same products in the same markets for the same price and have equally good reputations. In fact, they even have identical ROEs.

If Rainy Inc however, has a higher leverage ratio, then we can conclude that:
A) Rainy Inc. shareholders bear greater financial risk than Sunny Inc. shareholders.
B) Rainy Inc. has a lower ROA.
C) either the net profit margin or the asset turnover ratio for Rainy Inc. is lower than the comparable ratio for Sunny Inc.
D) All of the above are true.

ANSWER

D