Widget Co and Tools Inc -Which of the Following Statements Could Explain the Difference in Industry

Widget Co. and Tools Inc. both operate in the same industry. They are capital-intensive companies producing widgets. Below are selected data:
$\begin{array}{lll}&\text { Widget Co. }&\text { Tools Inc. }\\\text { Net operating assets/common equity } & 1.37 & 1.53 \\\text { Net operating profit margin } & 19 \% & 21 \% \\\text { Income tax rate } & 47 \% & 28 \% \\\text { Revenues/net operating assets } & 0.81 & 0.61 \\\text { EBIT/revenues } & 38 \% & 32 \%\end{array}$
-Which of the following statements could explain the difference in observed tax rates?

A) Widget uses straight-line depreciation and Tool uses MACRS.
B) Widget uses LIFO and Tool uses FIFO.
C) Tool has foreign subsidiaries in countries with much lower tax rates.
D) Widget has significant amounts of interest income from municipal bonds.

Correct Answer:

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