The amount of debt increases in firms capital structure

Assignment Help Financial Management
Reference no: EM13941546

In the traditional approach to capital structure, as the amount of debt increases in a firm's capital structure,

a. equity cost is unaffected.

b. debt becomes less risky.

c. the cost of equity rises faster than the cost of debt.

d. the cost of debt rises faster than the cost of equity.

Reference no: EM13941546

Questions Cloud

Identify the steps in the development of an activity based : Identify the steps in the development of an activity-based costing system. Differentiate between value-added and non value-added activities.
How to communicate the issue to the company : Provide a fully developed suggestion on how to proceed. This may entail suggesting how to communicate the issue to the company or providing a rewording the problematic advertising line (100% hypoallergenic). The suggestion is completely up to you
Explain the effects of american entry into the war : Discuss the reform efforts of the Progressive era and the groups involved in those efforts. Describe the methods used by the various states to bring about reforms in state governments during the Progressive era.
What is current stock price : The Connors Company's last dividend was $1.00. Its dividend growth rate is expected to be constant at 15% for 2 years, after which dividends are expected to grow at a rate of 10% forever. Connors' required return (rs) is 12%. What is Connors' current..
The amount of debt increases in firms capital structure : In the traditional approach to capital structure, as the amount of debt increases in a firm's capital structure,
Describe what you believe to be the most important concept : Describe what you believe to be the most important concept you have learned through general revelation, a concept that does not seem to be addressed in special revelation.
The bid for each share should range between per share : Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt. Vandell's free cash flow (FCF0) is $2 million per year and is expected to grow at a c..
Create a mystery class in java and implement it : public class MysteryTest
Shares outstanding and target capital structure consisting : Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt. Vandell's debt interest rate is 7.4%. Assume that the risk-free rate of interest is 5..

Reviews

Write a Review

Financial Management Questions & Answers

  What was net working capital-net operating working capitials

Last year Rattner Robotics had $5 million of operating income. Its depreciation expense was $1 million, its interest expense was $1 million, and its corporate tax rate was 40%. What was the company's net income? What was its net operating working cap..

  Continously compounded zero rate

The 6-month zero rate is 6% with semiannual compounding. The price of a 1-year bond that provides a coupon of 10% per annum semiannually is 96. What is the 1-year continously compounded zero rate?

  Not-for profit nursing home has total expenses

A not-for profit nursing home has total expenses of $20 million. Sales tax in the state is 7%. Expenses are broken down into salaries ($12 million), supplies ($6 million), and pharmacy ($2 million). The benefit received by the nursing home from the s..

  Cost of trade credit and accounts payable

Calculate the nominal annual cost of nonfree trade credit under each of the following terms. Assume payment is made either on the due date or on the discount date. Assume 365 days in year for your calculations. A chain of appliance stores, APP Corpor..

  Considering jumping on the pomegranate bandwagon

Coca-Cola is considering jumping on the pomegranate bandwagon by producing Poma-Cola and Pomegranate Sprite carbonated beverages in 2016 (t=1). New production equipment and facilities costing $30 million will be required in 2015 (t =0) and fall into ..

  The higher the companys dividend growth rate

Because investors like dividends, the higher the company's dividend growth rate, the lower the company's cost of common equity. If a project is acceptable using the NPV criteria, it will also be acceptable when using the profitability index and IRR c..

  What is the effective annual yield-current yield on the bond

Martin Software has 8.2 percent coupon bonds on the market with 21 years to maturity. The bonds make semiannual payments and currently sell for 106.9 percent of par. What is the current yield on the bonds? What is the effective annual yield?

  Which of these indicates that firm is efficient

When a firm's long-term debt-equity ratio is .98, the firm: If a firm's total debt ratio is greater than .5, then: Which of the following actions could improve a firm's current ratio if it is now less than 1.0? What is the residual income for a firm ..

  Draw a cash flow diagram and at an interest rate

Cummins crane corporation is considering replacing its controllers on its heavy lift cranes with new portable infrared controllers. 3C expects to achieve cost savings of 15k the second year, increasing by $1500 each year thereafter for the next 4 yea..

  Variable costing income statement and absorption statement

For month ended 6/30/X1, there were 1,531 of direct labor hours incurred - Explain how would I begin creating a variable costing income statement and absorption statement?

  As general rule-the optimal capital structure

As general rule, the optimal capital structure

  Rental yards provides construction equipment

Round Table Rental Yards provides construction equipment, trailers, crutches, etc., on short-term rentals. Historically, Art, the owner, has purchased the items that he rents out, but his business has been expanding so rapidly that he is considering ..

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