Encourage a firm to increase the amount of debt

Assignment Help Financial Management
Reference no: EM131360849

1. Which of the following statements is CORRECT?

a. A firm's business risk is determined solely by the financial characteristics of its industry.

b. The factors that affect a firm's business risk include industry characteristics and economic conditions, both of which are generally beyond the firm's control.

c. One of the benefits to a firm of being at or near its target capital structure is that this generally minimizes the risk of bankruptcy.

d. A firm's financial risk can be minimized by diversification.

e. The amount of debt in its capital structure can under no circumstances affect a company's EBIT and business risk.

2. Other things held constant, which of the following events would be most likely to encourage a firm to increase the amount of debt in its capital structure?

a. Its sales are projected to become less stable in the future.

b. The bankruptcy laws are changed in a way that would make bankruptcy more costly to the firm and its stockholders.

c. Management believes that the firm's stock is currently overvalued.

d. The firm decides to automate its factory with specialized equipment and thus increase its use of operating leverage.

e. The corporate income tax rate is increased.

Reference no: EM131360849

Questions Cloud

What is the total rate of return on the bond : Consider a bond (with par value = $1,000) paying a coupon rate of 10% per year semiannually when the market interest rate is only 4% per half-year. The bond has 3 years until maturity. Find the bond's price today and 6 months from now after the next ..
Which should have the higher yield to maturity : Two bonds have identical times to maturity and coupon rates. One is callable at 105, the other at 110. Which should have the higher yield to maturity?
Shares outstanding and market risk premium : Boeing has 50 million shares outstanding and is trading at $40 per share. The Beta is 1.15. The market risk premium is 9% and the risk-free rate is 5%. There is $1 billion in outstanding debt and it is trading at 105. The coupon rate is 9%, semiannua..
Business impact analysis and risk communication : Define and discuss the Risk Management function and its supporting sub functions of: Risk Assessment; Business Area Analysis, Business Impact Analysis, Risk Communication; and Risk-Based Decision Making.
Encourage a firm to increase the amount of debt : A firm's business risk is determined solely by the financial characteristics of its industry. A firm's financial risk can be minimized by diversification. Other things held constant, which of the following events would be most likely to encourage a f..
What is the dividend yield on this investment : One year ago, you bought a stock for $15.40 a share. You received a dividend of $0.90 per share last month and sold the stock today for $17.80 a share. What is the dividend yield on this investment? Merced Co. has a beat of 1.4. If the risk free rate..
What are best and worss cases for these projections : You are thinking about a new product launch. The project will cost $1,750,000, have a four=year life, and have no salvage value; depreciation is straight-line to zero. what are the best and worss cases for these projections?
Important in understanding the overall financial health : Financial Statements are critically important in understanding the overall "financial health" of a company. All of the financial statements must be reviewed as a complete package rather than one being analyzed as a standalone statement that could giv..
Values for lump sum assuming semiannual compounding : Find the following values for a lump sum assuming semiannual compounding.

Reviews

Write a Review

 

Financial Management Questions & Answers

  What is the stock expected rate of return

Green Company's common stock is currently selling at $24.00 per share. The company recently paid dividends of $1.92 per share and projects growth at a rate of 4%. At this rate, what is the stock's expected rate of return? Fris B. Corporation stock is..

  Purchased foreclosed house-mortgage loan with interest rate

Lucinda Lacy purchased a foreclosed house today for $105,500 by making a down payment of 15% of the purchase price and paying closing costs of: Determine manually (handwritten), by trial and error, Lucinda’s rate of return, if she owns the house for ..

  The appropriate weighted average tax rate

Suppose that TipsNToes, Inc.'s capital structure features 75 percent equity, 25 percent debt, and its cost of equity is 12 percent, while its before-tax cost of debt is 8 percent. If the appropriate weighted average tax rate is 40 percent, what will ..

  Firms overall cost of capital were used as hurdle rate

The T-bill rate is 4%, and the expected return on the market portfolio is 11%. a. Which projects have the higher expected return than the firm’s 11% cost of capital? b. Which projects should be accepted? c. Which projects would be incorrectly accepte..

  Explain why the bond is selling for premium or discount

Assume you are considering adding a bond to a client's investment portfolio Please recommend a specific bond in your post and explain why the bond is selling for a premium or discount. List one possible reason why the required return on a bond may di..

  The natural vacancy rate in a property sector

The natural vacancy rate in a property sector (check all that apply): Property markets return to equilibrium at the same speed regardless of a positive or negative economic shock. Modeling investment as dynamic decisions can lead to over-building of ..

  What is the value of the levered firm

Currently, the firm has no debt but is considering borrowing $725,000 at 6.75 percent interest. The tax rate is 35 percent and the current cost of equity is 15.2 percent. What is the value of the levered firm?

  What is the value of liverpools asset

Liverpool Ferries is a navigation company. Until last year Liverpool had no debt, and last year its operations had an expected net income of 2 million GBP. At the end of the year the company undertook some debt so that the debt-to-equity ratio is now..

  Noncallable bond with annual coupon rate

Assume that you are considering the purchase of a 6-year, noncallable bond with an annual coupon rate of 9.05%. The bond has a face value of $1000, and it makes semiannual interest payments. If you require an 12.90% yield to maturity on this investme..

  Cost-effective method of mining gold is sulphuric acid

After discovering a new gold vein in the Colorado Mountains, CTT Mining Corporation must decide whether to go ahead and develop the deposit. The most cost-effective method of mining gold is sulphuric acid extraction, a process that results in environ..

  Compute the financial leverage percentage

The comparative financial statements prepared at December 31, 2015, for Prince Company showed the following summarized data: 2015 2014 Income statement: Sales revenue $ 191,800 * $ 167,500 Cost of goods sold 112,200 101,100. Compute the debt-to-equit..

  Shares of common stock outstanding at price per share

Western Electric has $23,000 shares of common stock outstanding at a price per share of $57 and a rate return of 14.2 percent. the firm has 6,000 shares of 7 percent preferred stock outstanding $48 a share. The amount of outstanding debt 357,000. The..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd