All of the following are likely to result in the use of less debt in a company's capital structure EXCEPT A.desire to maintain a high credit rating. B.desire to maintain financial flexibility. C.insufficient internal funds. D.a decrease in a company's marginal tax rate.

A company uses two main types of funding – debt and equity. Debt refers borrowings and liabilities…

Answered: All of the following are likely to…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Which of the following statements is CORRECT? * Assume a corporation has less debt than what is ideal. Increasing the use of debt to reach its optimum capital structure would lower the cost of both debt and equity financing. There is no reason to believe that changes in the personal tax rate will have an effect on firms' capital structure decisions. Assuming everything else is equal, a firm with high business risk is more likely to increase the use of financial leverage than a firm with low business risk. In general, a company with low operating leverage has a small percentage of its total costs in the form of fixed costs. If a company's after-tax cost of equity exceeds its after-tax cost of debt, it can still lower its WACC by using more debt.
If the present value of a firm's marginal financial distress costs are equal to the present value of its marginal tax shieid, the companySelect one:a.has too much debt in its capital structureb.should increase the amount of debt in ts capital structurec. has an optimal capital structured.shouid reduce the amount of equity in its capital structuree:none of the abovt
Which of the following best describes why the predicted incremental earnings arising from a given decision are not sufficient in and of themselves to determine whether that decision is worthwhile? ... O A. They do not tell how the decision affects the firm's reported profits from an accounting perspective. O B. They are not easily predicted from historical financial statements of a firm and its competitors. O C. They do not show how the firm's earnings are expected to change as the result of a particular decision. O D. These earnings are not actual cash flows.
Which of the following will increase the WACC for a tax-paying company? Decrease the proportion of equity financing Decrease the proportion of debt financing Decrease the market value of the equity Increase the market value of the debt
"Executives would prefer to show lower earnings per share because the company's tax bill will be reduced." Discuss
It is common for a financially healthy company to have a negative net working capital. True False
Under the trade-off theory, lowering the corporate tax rate will incentivize companies to increase the ratio of debt in their capital structure. Question options: a) True b) False
debt can bo soon as a remedy for agency costs and -problems, and therefore create value in companies. However, in certain circumstances debt can also be responsible for aggravating agency problems, and load to value destruction in companies. Please explain and discuss this statement.

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	A.	desire to maintain a high credit rating.
	B.	desire to maintain financial flexibility.
	C.	insufficient internal funds.
	D.	a decrease in a company's marginal tax rate.

All of the following are likely to result in the use of less debt in a company's capital structure EXCEPT A. desire to maintain a high credit rating. B. desire to maintain financial flexibility. C. insufficient internal funds. D. a decrease in a company's marginal tax rate.