Consider the following two potential transactions: (i) borrow from a bank; and (ii) use the proceeds from borrowing to pay out dividend. Assume this is an NFA firm. The combination of two financial transactions will A. reduce the financial leverage (FLEV) and the firm will continue to be an NFA firm. B. reduce the financial leverage (FLEV) and the firm will switch to an NFO firm. C. increase the financial leverage (FLEV) and the firm may become be an NFO firm. D. increase the financial leverage (FLEV) and the firm cannot be an NFA firm anymore.

Consider the following two potential transactions: (i) borrow from a bank; and (ii) use the proceeds from borrowing to pay out dividend. Assume this is an NFA firm. The combination of two financial transactions will A. reduce the financial leverage (FLEV) and the firm will continue to be an NFA firm. B. reduce the financial leverage (FLEV) and the firm will switch to an NFO firm. C. increase the financial leverage (FLEV) and the firm may become be an NFO firm. D. increase the financial leverage (FLEV) and the firm cannot be an NFA firm anymore.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Hi! I'm having difficulty comparing the choices between raising a large amount of cash in the capitaal market verses the bond market. I have to make a decision as to what is best and why, all while considering ethical implications of financial reporting and how it relates to acquiring additional investors and accessing markets for additional capital. Consider the impact on the following on your choice: The company’s existing capital structure The company’s current market capitalization The company’s weighted average cost of capital The company’s degree of operating, financial and combined leverage
Check all that apply. Use more debt financing in its capital structure and increase the equity multiplier. Use more equity financing in its capital structure, which will increase the equity multiplier. Increase the interest rate on its notes payable or long-term debt obligations because it will reduce the company's net profit margin. Increase the efficiency of its assets so that it generates more sales with each dollar of asset investment and increases the company's total assets turnover.
Which of the following statements is most correct? Group of answer choices The optimal capital structure maximizes the WACC. None of these. Increasing the amount of debt in a firm's capital structure is likely to increase the cost of both debt and equity financing. If the after-tax cost of equity financing exceeds the after-tax cost of debt financing, firms are always able to reduce their WACC by increasing the amount of debt in their capital structure.
WoeBeTide's chief objective is to meet its investment needs and maintain its target debt-equity ratio before paying dividends. WoeBeTide is following a dividend approach. Select one: a. cyclical b. stable C. compromise d. residual e. stochastic
Which statement is most correct? * A. Since debt financing raises the firm’s financial risk, increasing debt ratio will increase WACC. B. Since debt financing is cheaper than equity financing, increasing debt ratio will reduce WACC. C. Increasing a firm’s debt ratio will typically reduce the marginal costs of both debt and equity financing; however, it still may raise the firm’s WACC. D. Statements a and c are correct. E. None of the above
Please help me correctly pls
1. Interactions between financial market participants Financial markets facilitate the transfer of excess funds from those who have them to those who need them. In the following table, determine whether each financial market participant is a surplus unit or deficit unit. Financial Market Participant A state that is constantly running a budget deficit A firm that issues equity securities to expand operations A consumer that purchases equity securities from a new tech company Surplus Unit Deficit Unit S An angel investor Suppose Moonlit Productions needs to raise money to finance its new manufacturing facility, but their CFO does not want to part with any of the firm's equity. In this case, Moonlit Productions would likely issue securities to obtain the funding. Which of the following are ways that Moonlit Productions could obtain funds to finance the expansion of its operations, given its stated preference in the previous question? Check all that apply. Issue common stocks Issue…
Which of the following would reduce a firm's WACC after tax? a. A firm invests in an average-risk project using equity, rather than debt financing. b. A supermarket chain decides to establish hardware stores which increases its systematic risk. c. A firm issues shares and uses the proceeds to pay off a bank loan. d. A firm issues bonds and uses the proceeds to repurchase stock. e. A firm significantly improves its operating cost control to boost profits.
Generally speaking, the cost of debt is cheaper than the cost of equity. Does it imply that a firm should increase its debt-to-equity ratio to as high as possible such that its corporate cost of capital can be minimized?
How many statements below are correct about the Modigliani-Miller theorem? i. The theorem is not an exact description of reality. ii. The theorem provides a benchmark to understand how the capital structure could affect WACC. iii. The theorem implies that firms have benefited from financing with debt due to a higher required rate of return on debt compared with equity. iv. The value of the firm is not affected by its capital structure under any assumptions.
Several factors affect a firm’s need for external funds. Evaluate the effect of each following factor and place a check next to each factor that is likely to increase a firm’s need for external capital—that is, its AFN (additional funds needed). Check all that apply. The firm increases its dividend payout ratio. The firm switches its supplier for the majority of its raw materials. The new supplier offers less favorable credit terms and thus reduces the trade credit available to the firm, resulting in a reduction in accounts payable. The firm improves its production system and increases its profit margin. Accounts payable and accrued liabilities represent obligations that the firm must pay off. Assuming everything else holds constant, if they increase, the firm’s AFN will_________ .
Suppose a firm wants to maintain a specific TIE ratio. It knows the amount of its debt, the interest rate on that debt, the applicable tax rate, and its operating costs. With this information, the firm can calculate the amount of sales required to achieve its target TIE ratio. a. True b. False