Homework Help is Here – Start Your Trial Now!
Business
Accounting
Debt ratios measure the proportion of total assets financed by a firm's creditors. Sunny Co. has a debt-to-equity ratio of 2.00, compared to the industry average of 2.40. Its competitor Carter Co., however, has a debt-to-equity ratio of 1.60. Based on what debt-to-equity ratios imply, which of the following statements is true? Carter Co.'s creditors face higher risk than the average financial risk in the industry. Sunny Co. has higher creditworthiness as compared to Carter Co. Sunny Co. has greater financial risk as compared to Carter Co. but lower than the average financial risk in the industry. O Carter Co. has a greater risk of bankruptcy than Sunny Co. Suppose the stock price of Carter Co. increases by 15%. What impact will it have on its market-to-debt ratio if nothing changes in the company's balance sheet? The market debt ratio will increase, reflecting an increase in the financial risk of the company. The market debt ratio will increase, reflecting a decrease in the financial risk of the company. The market debt ratio will decrease, reflecting an increase in the financial risk of the company. The market debt ratio will decrease, reflecting a decrease in the financial risk of the company. Data Collected (Millions of dollars) Year 1 EBITDA $600 Interest payments $60 Principal payments $48 Lease payments $27 Carter Co. reported the following figures in its annual report. Based on the information, Carter Co. has the ability to cover its fixed financial charges 4.44 times.

Debt ratios measure the proportion of total assets financed by a firm's creditors. Sunny Co. has a debt-to-equity ratio of 2.00, compared to the industry average of 2.40. Its competitor Carter Co., however, has a debt-to-equity ratio of 1.60. Based on what debt-to-equity ratios imply, which of the following statements is true? Carter Co.'s creditors face higher risk than the average financial risk in the industry. Sunny Co. has higher creditworthiness as compared to Carter Co. Sunny Co. has greater financial risk as compared to Carter Co. but lower than the average financial risk in the industry. O Carter Co. has a greater risk of bankruptcy than Sunny Co. Suppose the stock price of Carter Co. increases by 15%. What impact will it have on its market-to-debt ratio if nothing changes in the company's balance sheet? The market debt ratio will increase, reflecting an increase in the financial risk of the company. The market debt ratio will increase, reflecting a decrease in the financial risk of the company. The market debt ratio will decrease, reflecting an increase in the financial risk of the company. The market debt ratio will decrease, reflecting a decrease in the financial risk of the company. Data Collected (Millions of dollars) Year 1 EBITDA $600 Interest payments $60 Principal payments $48 Lease payments $27 Carter Co. reported the following figures in its annual report. Based on the information, Carter Co. has the ability to cover its fixed financial charges 4.44 times.

Financial Reporting, Financial Statement Analysis and Valuation
Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Chapter5: Risk Analysis
Section: Chapter Questions
Problem 6QE: A firm had the following values for the four debt ratios discussed in the chapter: Liabilities to...
See similar textbooks
icon
Related questions
Question
Debt ratios measure the proportion of total assets financed by a firm's creditors. Sunny Co. has a debt-to-equity ratio of 2.00, compared to the industry average of 2.40. Its competitor Carter Co., however, has a debt-to-equity ratio of 1.60. Based on what debt-to-equity ratios imply, which of the following statements is true? Carter Co.'s creditors face higher risk than the average financial risk in the industry. Sunny Co. has higher creditworthiness as compared to Carter Co. Sunny Co. has greater financial risk as compared to Carter Co. but lower than the average financial risk in the industry. O Carter Co. has a greater risk of bankruptcy than Sunny Co. Suppose the stock price of Carter Co. increases by 15%. What impact will it have on its market-to-debt ratio if nothing changes in the company's balance sheet? The market debt ratio will increase, reflecting an increase in the financial risk of the company. The market debt ratio will increase, reflecting a decrease in the financial risk of the company. The market debt ratio will decrease, reflecting an increase in the financial risk of the company. The market debt ratio will decrease, reflecting a decrease in the financial risk of the company.
Transcribed Image Text:Debt ratios measure the proportion of total assets financed by a firm's creditors. Sunny Co. has a debt-to-equity ratio of 2.00, compared to the industry average of 2.40. Its competitor Carter Co., however, has a debt-to-equity ratio of 1.60. Based on what debt-to-equity ratios imply, which of the following statements is true? Carter Co.'s creditors face higher risk than the average financial risk in the industry. Sunny Co. has higher creditworthiness as compared to Carter Co. Sunny Co. has greater financial risk as compared to Carter Co. but lower than the average financial risk in the industry. O Carter Co. has a greater risk of bankruptcy than Sunny Co. Suppose the stock price of Carter Co. increases by 15%. What impact will it have on its market-to-debt ratio if nothing changes in the company's balance sheet? The market debt ratio will increase, reflecting an increase in the financial risk of the company. The market debt ratio will increase, reflecting a decrease in the financial risk of the company. The market debt ratio will decrease, reflecting an increase in the financial risk of the company. The market debt ratio will decrease, reflecting a decrease in the financial risk of the company.
Data Collected (Millions of dollars) Year 1 EBITDA $600 Interest payments $60 Principal payments $48 Lease payments $27 Carter Co. reported the following figures in its annual report. Based on the information, Carter Co. has the ability to cover its fixed financial charges 4.44 times.
Transcribed Image Text:Data Collected (Millions of dollars) Year 1 EBITDA $600 Interest payments $60 Principal payments $48 Lease payments $27 Carter Co. reported the following figures in its annual report. Based on the information, Carter Co. has the ability to cover its fixed financial charges 4.44 times.
Expert Solution
steps

Step by step

Solved in 2 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Financial Reporting, Financial Statement Analysis…
Financial Reporting, Financial Statement Analysis…
Finance
ISBN:
9781285190907
Author:
James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:
Cengage Learning
Cornerstones of Financial Accounting
Cornerstones of Financial Accounting
Accounting
ISBN:
9781337690881
Author:
Jay Rich, Jeff Jones
Publisher:
Cengage Learning
SEE MORE TEXTBOOKS