Which one of the following is not an effect of an increase in leverage A. Managers have fewer free cash flows at their disposal because of increased interest payments B. Expected bankruptcy costs increase C. The firm's cost of equity increases D. The firm's tax bill increases

Which one of the following is not an effect of an increase in leverage A. Managers have fewer free cash flows at their disposal because of increased interest payments B. Expected bankruptcy costs increase C. The firm's cost of equity increases D. The firm's tax bill increases

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter31: Capital Markets

Section: Chapter Questions

Problem 4E

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Question

Which one of the following is not an effect of an increase in leverage

A. Managers have fewer free cash flows at their disposal because of increased interest payments

B. Expected bankruptcy costs increase

C. The firm's cost of equity increases

D. The firm's tax bill increases

Definition Definition Cash that is left over after a company has paid for its operating and capital expenses. Unlike net income or earnings, free cash flow excludes non-cash expenses of the income statement and includes the expenditures on equipment and assets. Free cash flow also helps potential shareholders to evaluate how quickly the company can pay interest and dividends.

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