Question 1(i)If a company increased its share capital and reduced its long term debt, then gearingwould:A. ReduceB. Stay the sameC. Be eliminatedD. Increase(ii)A common feature of a business with high gearing is:A. Shareholders receive lower dividends per shareB. Profits increase when interest rates riseC. More difficult to raise additional debt financeD. All of the above

Gearing ratio : The accounting ratio tells the proportion of the total debt of the…

Answered: (i) If a company increased its share…

(i) If a company increased its share capital and reduced its long term debt, then gearing would: A. Reduce B. Stay the same C. Be eliminated D. Increase

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: According to MM propositions, which of the following statements best describes the consequence of…

A: MM proposition stands for Modigilani -Miller theorem states that the company’s market value should…

Q: Which statement about the cost of capital is incorrect? * A. If a company’s tax rate increases…

A: The weighted average cost of capital (WACC) is the sum of costs of different sources of finance…

Q: Which of the following changes would tend to increase the cost of capital for a traditional firm? O…

A: a). Increasing the amount of debt financing while reducing the amount of equity financing increases…

Q: In the 5-way DuPont deconstruction, which of the following would lead to an INCREASE in Return on…

A: Return on equity represents a performance measure for the firm and is estimated by dividing the…

Q: How does added debt potentially decrease the value of a firm?

A: Debt can be positive as well as negative, firms prefer to use debt in their capital structure to…

Q: Bolton Company substantially increased its allowance for bad debt. Which of the following effects…

A: The current ratio measures capabilities of the company to meet-out short-term obligations or not. it…

Q: company's Degree of Financial Leverage (DFL) is primarily influenced by decisions about:…

A: Financial leverage indicates how business is depending on its debt.

Q: A firm using a Leveraged vs a Conservative Capital Structure would have the following…

A: Capital structure is the structure of financing the funds from the different source. Sources are the…

Q: What is a share buyback? A) An opportunity for the company to increase dividends without sending a…

A: Share Buyback is a share repurchase wherein a company buys back its own shares from the marketplace…

Q: 7. Which of the following is true: a. If two companies have the same ROA, the firm with higher debt…

A: Return on assets compares the worth of a company's assets to the profits it generates over a…

Q: Which of the following statement is correct?

A: Pecking Order Theory: As per this theory, the preference for sources for funds is first retained…

Q: According to MM propositions, which of the following statements best describes the consequence of…

A: The M&M Theorem, or the Modigliani-Miller Theorem is a capital structure theory developed by…

Q: o. Compare and contrast different methods of capital reconstruction, such as share buybacks,…

A: Capital reconstruction refers to the process by which a company reorganizes its capital structure,…

Q: Compare and contrast different methods of capital reconstruction, such as share buybacks, debt - for…

A: Capital ReconstructionCapital restructuring is a strategic move by companies looking to reposition…

Q: Which of the following actions will have the result of increasing financial leverage in the firm? In…

A: Leverage in a firm represents the level of debt in a firm. A firm's leverage is said to increase if…

Q: Which statement about book value per share (BVPS) is true A. Market price per share usually…

A: Common shares the ordinary shares that are being issued by the company, on which dividends needs to…

Q: he weighted average cost of capital for a firm: Ois equivalent to the after-tax cost of the firm's…

A: WACC of the company is the cost of capital of the company and is minimum required of the company.

Q: Why does the WACC decrease as a firm begins to take on debt and then increase after a certain point?

A: WACC: It is also known as Weighted Average Cost of Capital. It is the mixture of weighted cost of…

Q: a company is more likely to be considered solvent if it has a ____ debt-equity ratio and a _____…

A: A lower debt-equity ratio indicates that a firm has a low value of debt in comparison to its equity.…

Q: True or False: All else being equal, a decrease in a company's profit margin will result in an…

A: Return on assets = Net income / Total assets So, if the profit margin decreases then, the return on…

Q: Which of the following is correct a. In a leveraged recapitalization, a firm uses its excess…

A: Leveraged Buyouts is the process of buying another company using money from outside sources, such…

Q: Which of the following statements is INCORRECT? Cutting the firm's dividend to increase…

A: Statement 3"A firm will increase its share price by reducing the total payout to shareholders." is…

Q: Suppose that a new government is elected and it changes the law applying to firms to: • Allow…

A: The trade-off theory of capital structure proposes that a corporation balances costs and advantages…

Q: Question 17 All else being equal, which one of the following will decrease a firm's current ratio? O…

A: Current assets means those assets which will be converted in to cash in near future generally one…

Question

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

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
The optimal capital structure: Multiple Choice will be the same for all companies within the same industry. will remain constant over time unless the company changes its primary operations. will vary over time as taxes and market conditions change. places more emphasis on operations than on financing. is unaffected by changes in the financial markets.
If a company sells new shares of stock to raise money, this will result in a ____ to the contributed capital accounts. A.Debit B.Credit
The optimal capital structure for firms in stable industries can reasonably contain ________________ than firms in volatile industries. Select one: A. more debt B. less debt C. an equal amount of debt D. There is no relationship between the cyclical nature of an industry and optimal capital structure
am. 375.
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
What are the factors that contribute to the temporary drop in a company's share price after a capital-raising plan is announced?
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?
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
An increase in the corporate tax rate for company X will generally Increase X's cost of equity capital Increase X's cost of debt capital Increase X's weighted average cost of capital Reduce X's cost of debt capital
True of False? Contributed capital decreases when the company has a net loss. If your answer is “False”, then explain (in one sentence) why the statement is false.