"If the firm's ROE is too low, the firm's debt ratio must be too low." True or false? Select one: O a. True O b. False
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: Assume that the risk-free rate increases, but the market risk premium remains constant. What impact…
A: Risk free rate is free from the risk. Every rate of return given is depends on the risk free rate.
Q: Which of the following statements is FALSE? As debt increases, the risk associated with bankruptcy…
A: Source of raising capital include: Equity financing Debt financing Loans from financial…
Q: PQ #1. The cost of capital for a firm which has no debt is called the A. Levered B. Unlevered C.…
A: Cost of Capital is that cost which is incurred by the company for using the capital of the company.…
Q: How does a firm's use of short-term debt as opposed to long-term debt subject the firm to a greater…
A: The given statement is that short-term debt leads to illiquidity as opposed to long-term debt. The…
Q: he MM model, as the proportion of debt in the capital structure increases, the cost of equity
A: Modigliani-Miller theorem is based on the value of the firm, with the assumption of no taxes,…
Q: Explain the effect of D/E on asset returns, equity returns (assuming that cost of debt is not…
A: Three main actors of production namely land, labor and capital are given primary importance. Capital…
Q: How does a firm evaluate if it has too many or too few current assets vs. its current liabilities?…
A: A firm evaluate if it has too many or too few current assets vs. its current liabilities by…
Q: The cost of debt, rd, is normally less than rs, so rd(1-T) will normally be much less than rs.…
A: The Weighted Average Cost of Capital (WACC) is a financial metric that calculates the average cost a…
Q: 11.Explain why a firm needs to understand their allocation of debt financing to equity (the amount…
A: The major decision that a financial manager has to make while making the financing decision is to…
Q: A firm cannot maintain a return on common equity less than the required rate of return and stay in…
A: Required rate of return is the minimum return rate which is accepted by the shareholders for the…
Q: Which of the following is true regarding a company assuming more debt? Select one: a. Assuming…
A: WHEN A COMPANY BORROWS MONEY TO BE PAID IN FUTURE WITH INTEREST IT IS KNOWN AS DEBT . MORE OF DEBT…
Q: .(True or False) Risk shifting refers to a situation in which management of a firm with risky debt…
A: Risk Risk The chance of loss in an investment or the uncertainties involved in an investment is…
Q: Select all that are true with respect to the cost of debt. Group of answer choices it is the return…
A: The cost of debt refers to the effective interest rate a company pays on its debts. It's essentially…
Q: How would each of the following scenarios affect a firm's cost of debt, r d (l - t), t=tax rate; its…
A: Overview: Weighted average cost of capital (WACC) : Weighted average cost of capital is the mean…
Q: In determining the optimal weighted average cost of capital, an MNC can never have too much debt.…
A: The Weighted Average Cost of Capital is always post tax. It is calculated with the help of following…
Q: nich of the following statement(s) is(are) false with respect to the Hybrid system? elect one or…
A: For the purpose of running the operations of the company, the company's will issue financial…
Q: Which of the following statements is false? A. Credit spreads narrow during an economic…
A: Credit Spread is the difference between the yield of the bonds with similar maturity but having…
Q: Critique this statement: “The use of debt financing lowers the net income of the firm, and hence…
A: The statement has two parts:The use of debt financing lowers the net income of the firm,Hence debt…
Q: Given that a firm is well within its current ratio and debt ratio covenants and that interest rates…
A: The firm cash and cash equivalents and debt is determined by the current ratio and debt ratio and if…
Q: Does net debt ratio provide useful information to the investor? Are the NonGAAP measures, ROCE and…
A: Investors are the resources who bring their capital to the company with an intention to earn the…
Q: In the context of the dividend discount model (DDM), a company can always increase its intrinsic…
A: The company is carrying activities for the purpose of increasing the overall returns. The returns…
Q: one of the following is true regarding the business and financial risk: Select one: a. the business…
A: Business risk refers to that type of risk which involves the decline in profitability and stability…
Q: Which of the following statements is correct?(a) The quickest way to determine whether the firmhas…
A: a) Time interest earned ratio is a ratio that is calculated that shows an indication about the…
Q: ou observe that a firm?s rofit margin is below the ndustry average, while its eturn on equity and…
A: you observer the firm, the profit margin is below the industry average, while its return on equity…
Q: Is this statement true or false? Give a reason for your answer. " Relevant or not, frequent changes…
A: Dividend policy is a policy that determines the division of earnings into dividend and 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: Which of the following is a valid reason for a firm not to use as much debt as it can raise? Group…
A: The use of more debt results in an increase in the firm's cost of capital as the proportion of…
Q: 4. Other things held constant, the more debt a firm uses, the lower its profit margin will be.
A: A ratio that helps to evaluate how much portions of the sales revenue of a company turns in the…
Q: Between equity and debt capital a.Both debt and equity are equally risky b.Equity is riskier than…
A: Equity and debt are sources of capital for a firm. Depending on the risk appetite of the firm, the…
Q: The cost of debt is normally higher than the cost of equity. Is it a good idea to always carry a…
A: Solution: False, The cost of debt is normally cheaper than the cost of equity.
Q: Which of the following is NOT a principle of finance? Select one: O a. company advantage O b.…
A: Finance can be referred to as the study of the allocation of assets and liabilities as per the risk…
Q: don´t undertand why Office Depot has the greatest possibility if the Debt ratio is higher which…
A: A liability is a legal obligation to pay other entities as a result of past transactions or other…
Q: 2. The Trade-OfT Model A. "The trade-off model of debt financing implies that an increase in the…
A: As you have asked multiple questions, we will solve the first question as per the policy of…
Q: All else equal, the use of debt will a.result in a lower earnings per share and, thus, a higher P/E…
A: EPS = Net profit / No. of shares outstanding
Q: key benefits associated with refunding debt are the reduction in the firm's debt ratio and the…
A: The debt ratio is ratio that dictates that how much company has taken the debt out of its total…
Q: Assume that Modigliani-Miller Propositions 1 and 2 hold. Ex- plain carefully why the conclusion of…
A: The Modigliani-Miller theorem (MM) states that the market value of a company is calculated by its…
Q: hich of the following statements are true and which are false?
A: I. Externalities is the one of the reason for market failure not an only reason. They are many…
Q: a. There are tax benefits to debt, so capital structure can affect the value of the firm b. Firms…
A: The correct answer to the first question is (a) There are tax benefits to debt, so capital structure…
Q: True or False An all-equity financed firm will not have any financial risk
A: The capital structure of a corporation is the combination of the different sources of financing…
Q: A firm is in a world with (a) taxes, (b) costs of financial distress, (c) agency conflicts between…
A: The increase of financial leverage will be providing benefits of company in terms of taxes because…
Q: Which of the following is the correct definition for the sustainable growth rate? a. The maximum…
A: The sustainable growth rate (SGR) is the maximum possible growth rate that a company can achieve…
Q: 2. Which of the following is false about the under-investment problem? The under-investment problem…
A: Under investment is an agency problem when the amount of debt in the company's capital structure is…
!["If the firm's ROE is too low, the firm's debt ratio must be too low." True or false?
Select one:
O a. True
O b. False](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fac4b92ec-14a3-4828-a7fd-5da8d8421362%2Fce6579a8-c78d-4763-930f-94f229b129ee%2Fz9qjhbw_processed.jpeg&w=3840&q=75)
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- Is the following sentence true or false? Please explain. The cost of new equity (re) could possibly be lower than the cost of reinvested earnings (rs) if the market risk premium, risk-free rate, and the company's beta all decline by a sufficiently large amount.Q.A low debt ratio, compared to other industry competitors with similar operating leverage, most likely means the firm has A. a higher cost of capital than the competition. B. a higher EVA than the competition. C. a lower bond rating than the competition. D. none of the above.Debt allows an economy to appear very large but debt also creates more ____ in an economy. Inevitability Surety Certainty Risk Business
- Consider two firms that are alike in every way except that Firm A has fixed rate debt in its capital structure and Firm B has variable rate debt. Which firm has riskier equity? Why?“Having zero debt in the firm’s capital structure is not an ideal scenario.” Do you agree withthis statement? ExplainWhich of the following statements is correct? A. The optimal dividend policy is the one that satisfies management, not shareholders. B. The use of debt financing has no effect on earnings per share (EPS) or stock price. C. Stock price is dependent on the projected EPS and the use of debt, but not on the timing of the earnings stream. D. The riskiness of projected EPS can impact the firm's value. E. Dlvidend policy is one aspect of the firm's financial policy that is determined solely by the shareholders. Reset Selection
- What is WACC? Why do firms compute it? What happens to WACC when the debt level of a firm changes?While the use of debt can lower the average cost of capital, there is a point that the debt leverage gets high enough it increases the cost of capital. Group of answer choices True FalseWhich of the following statements are true about the interest-burden ratio? Check all that apply: It can be expressed as EBIT/Interest Expense. If the company has no financial leverage, the interest-burden ratio will be equal to 0. A company with higher financial leverage will have a lower interest-burden ratio. If the company has no financial leverage, the interest-burden ratio will be equal to 1. It can be expressed as Net profits/Pretax profits.
- The pecking order states that firms should: Group of answer choices issue debt first. use internal financing first. always issue debt then the market won't know when management thinks the security is overvalued. issue new equity first.All the statements are incorrect regarding current ratio except? a. The more predictable a firm's cash flows, the higher the acceptable current ratio. b. A higher current ratio indicates a higher return on equity. c. The more predictable a firm's current ratio, the higher the clyrent liabilities. d. A higher current ratio indicates a greater degree of liquidity.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.
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