A) the coverage of expenses associated with debt and operating income.
B) the return on investment capital.
C) the magnitude of historical capital expenditure over the years.
D) none of the above.
F) A) and B)
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A) 10%
B) 18%
C) 12%
D) None of the above
F) A) and D)
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A) The value of the firm would increase because of the increase in the assets of the firm.
B) The value of the firm would decrease because of the increase in the present value of distress costs.
C) It is completely irrelevant to the size of the firm.
D) The value of distress costs do not affect a firm in a tax-free world.
F) B) and D)
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A) measure of the ability of a firm to cover all debt payments, principal and interest with its cash balance
B) measure of the ability of a firm to cover interest costs with its cash balance
C) an expanded interest coverage ratio
D) measure of the cash flow available over a period of time to cover outstanding debt
F) B) and D)
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A) With zero taxes and zero bankruptcy costs, the value of the firm is independent of its debt-equity ratio.
B) With taxes and zero bankruptcy costs, the value of the firm reaches a maximum and then declines as the debt-equity ratio increases.
C) With taxes and bankruptcy costs, the value of the firm reaches a maximum and then declines as the debt-equity ratio increases.
D) With taxes and bankruptcy costs, the value of the firm is independent of its debt-equity ratio.
F) B) and D)
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Since debt has a tax benefit (the intere...View Answer
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A) Is the firm profitable?
B) Can the firm issue debt? Or what type of assets does the firm have?
C) How risky is the firm's underlying business?
D) All of the above.
F) None of the above
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A) the level of risk aversion of the investors toward the debt of the firm.
B) its instability.
C) the probability that it may occur.
D) all of the above
F) A) and C)
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A) The firm should finance using retained earnings, then debt, and, finally common equity.
B) The firm should finance using debt, then retained earnings, and, finally common equity.
C) The firm should finance using common equity, then retained earnings, and finally debt.
D) The firm should finance using retained earnings, then preferred shares, then debt and finally common equity.
F) A) and C)
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