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Which of the following are true about the relation between debt and equity financing? (choose all that apply)
The cost of debt is always less than the cost of equity.
The cost of equity always decreases as the debt-to-equity ratio increases.
Increasing the use of debt does not always decrease the weighted average cost of capital.
Highly levered firms do better in recessions than all equity firms.
Increasing the tax rate will increase the value of the interest tax shield but lower the value of equity.
Increasing the tax rate will increase the cost of equity.
According to the Pecking order hypothesis, increasing the tax rate will cause firms to issue more debt.
Option to Wait Your company is deciding whether to invest in a new machine. The new machine will increase cash flow by $475,000 per year. The cost of the machine will decline by $210,000 per year until it reaches $2,270,000, where it will remain. If ..
There are a number of theories of the term structure of interest rates including the unbiased expectations hypothesis, preferred habitat hypothesis, and market segmentation hypothesis. Discuss the implications of the unbiased expectations hypothesis ..
What are the attributes of successful entrepreneurs? How can organizations keep employees motivated who possess high levels of entrepreneurial attributes?
Unbiased Expectations Theory (LG6-5) Suppose we observe the 3-year Treasury security rate (1R3) to be 5 percent, the expected 1-year rate next year—E(2r1)—to be 5 percent, and the expected 1-year rate the following year—E(3r1)—to be 5 percent. If the..
Now let's discuss labor variances. Discuss the two labor variances that may occur, including how they are calculated. What are some reasons for either type of labor variance?
You purchase 6,500 bonds with a par value of $1,000 for $981 each. The bonds have a coupon rate of 10.4 percent paid semiannually, and mature in 10 years. How much will you receive on the next coupon date? How much will you receive when the bonds mat..
The market value of Firm L's debt is $200,000 and its yield is 10%. The firm's equity has a market value of $300,000, its earnings are growing at a 5% rate, and its tax rate is 40%. A similar firm with no debt has a cost of equity of 14%. Under the M..
A 12-year, 5 percent coupon bond pays interest annually. The bond has a face value of $1,000. What is the percentage change in the price of this bond if the market yield rises to 6 percent from the current level of 5.5 percent?
Which of the following factors would increase the likelihood that a company would call its outstanding bonds at this time?
Accrual income versus cash flow for a period Thomas Book Sales, Inc., supplies textbooks to college and university bookstores. The books are shipped with a proviso that they must be paid for within 30 days but can be returned for a full refund credit..
Ashley is an actuary who is employed by the Nebraska Department of Insurance. Her duties include monitoring the financial position of insurance companies doing business in Nebraska. Based on an analysis of annual financial statements that insurers ar..
foreign bonds are bonds sold by a foreign borrower but denominated in the currency of the country in which the issue is
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