Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN: 9781337395083
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Chapter 16, Problem 5Q
Summary Introduction
To discuss: Whether the statement is true or false, “other things being equal, firms with comparatively stable sales are able to carry comparatively high debt ratios.
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Discuss the following statement: All else equal, firms with relatively stable sales are able tocarry relatively high debt ratios. Is the statement true or false? Why?
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As debt-financing is usually cheaper than equity financing, debt-financing will lower risk for transnational company.
Chapter 16 Solutions
Intermediate Financial Management (MindTap Course List)
Ch. 16 - Prob. 1QCh. 16 - Prob. 2QCh. 16 - Prob. 3QCh. 16 - One type of leverage affects both EBIT and EPS....Ch. 16 - Prob. 5QCh. 16 - Prob. 6QCh. 16 - Prob. 7QCh. 16 - Prob. 8QCh. 16 - Prob. 9QCh. 16 - Prob. 1P
Ch. 16 - Unlevered Beta
Counts Accounting’s beta is 1.15...Ch. 16 - Premium for Financial Risk
Ethier Enterprise has...Ch. 16 - Value of Equity after Recapitalization Nichols...Ch. 16 - Stock Price after Recapitalization Lee...Ch. 16 - Prob. 6PCh. 16 - Prob. 7PCh. 16 - Capital Structure Analysis Pettit Printing Company...Ch. 16 - Optimal Capital Structure with Hamada
Beckman...Ch. 16 - WACC and Optimal Capital Structure F. Pierce...Ch. 16 - Prob. 12PCh. 16 - Prob. 1MCCh. 16 - Prob. 2MCCh. 16 - Prob. 3MCCh. 16 - Prob. 4MCCh. 16 - Prob. 5MCCh. 16 - Prob. 6MCCh. 16 - What does the empirical evidence say about capital...Ch. 16 - Suppose there is a large probability that L will...Ch. 16 - What is the value of Ls stock for volatilities...
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- You observe that a firm?s profit margin is below the industry average, while its return on equity and debt ratio exceed the industry average. What can you conclude?arrow_forwardWhich of the following is true regarding a company assuming more debt? Select one: a. Assuming more debt is always bad for the company b. Assuming more debt reduces leverage c. Assuming more debt can be good for the company as long as they earn a return in excess of the rate charged on the borrowed funds d. Assuming more debt is always good for the companyarrow_forwardConsider 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?arrow_forward
- Which one of the following factors would likely cause a firm to increase its use of debt financing as measured by the debt to total capital ratio? A.Increased economic uncertainty. B.An increase in the degree of operating leverage. C.An increase in the corporate income tax rate. D.An increase in the price-earnings ratio.arrow_forwardWhich of the following typically is true for profitability ratios? a. Growth stocks have lower price to earnings ratios.b. Companies in more competitive industries have higher profit margins.c. The gross profit ratio declines as competition increases.d. When a company has debt, its return on equity will be lower than its return on assets.arrow_forwardGenerally 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?arrow_forward
- 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. Falsearrow_forwardDu Pont Analysis. CFA Corp. has a debt-equity ratio that is lower than the industry average, but its cash coverage ratio is also lower than the industry average. What might explain this seeming contradiction?arrow_forwardNonearrow_forward
- Please answer multi-choice question in photo.arrow_forward"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. Falsearrow_forwardDebt management ratios measure how effectively the firm uses its plant and equipment. Which of the following statements is CORRECT? The use of debt will always decrease a firm's ROE. O Debt exposes the firm to more financial risk than if it was financed only with equity. Firms with relatively high debt ratios typically have lower expected returns when the economy is normal, but experience higher returns and possibly face bankruptcy if the economy goes into a recession. The TIE ratio measures the extent to which operating income can increase before the firm is unable to meet its annual interest costs.arrow_forward
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