A company that is leveraged is one that O a. contains debt financing so as to increase the return on an investment. O b. contains equity financing. O c. contains no debt financing. O d. has a high earnings per share.
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Q: Which of the following does NOT directly affect a company's cost of equity? Select one: a. Return…
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Q: If the debt component in the capital structure is predominant –
A: Debt: It is a part of the capital structure that involves bonds, loans, etc. Introducing debt to the…
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A: The weighted average capital cost (WACC) consists of the measurement of a capital price of 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: Which of the following statements are true and which are false? o). High breakeven points in capital…
A: o). High breakeven points in capital intensive industries are desirable. True
Q: tatement is true b. The above sta
A: Explanation : In simple words, fixed incomes instruments like bonds and notes pays their holders a…
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A: Generally, it has been observed that the company cost of debt is lower as compared to its equity…
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Q: which of the following is not an advantage of equity rather than debt financing a. lower cost b.…
A: Financing is a procedure where a company arrange for funds to operate its business. It is done…
Q: 1. Which of the following is not a component used in calculating the cost of capital? A. The cost of…
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Q: Which of the following statements is FALSE? A. Equity cost of capital is normally higher then…
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A: WACC- Weighted average cost of capital (WACC) is the rate that a company is expected to pay on…
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: 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: Identify the following as either an advantage (A) or a disadvantage (D) of bond financing for a…
A: Bond financing refers To the borrowing for the long term that is used by the state and local…
Q: According to Modigliani and Miller, what happens to the cost of equity when the firm increases its…
A: Equity financing is the process of raising money from the investors and give ownership to the equity…
Q: For a typical firm, assumes that all rates are after taxes and that the firm operates at its target…
A: Given, cost of equity > after tax cost of debt > WACC.
Q: MM Proposition II states that: I) the expected return on equity is positively related to leverage;…
A: MM has given two basic proposition one is related to value of firm and second is about the cost of…
Q: Companies
A: INTRODUCTION: COMPANIES RAISE THEIR FUNDS BY WAY OF TWO SOURCES: OWNED FUNDS(issuing shares ).…
Q: Leverage implies
A: Correct Answer :- A Contains Debt Financing
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A: The capital structure consists of equity and debt used by the company to finance the operation and…
Q: Financial leverage is the degree to which a firm or individual utilizes . A.…
A: Financial Leverage: Financial leverage is a term used to define the capital structure of a company…
Q: What are the charateristics of Debt financing and Equity fianancing? If a company wanted to maximize…
A: Answer: Usually for a company there are various sources available to raise funding. Such a issuing…
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A: MM proposition with tax: value of levered firm = value of unlevered firm + gain frm leverage
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Q: For purposes of measuring a firm’s leverage, should preferred stock be classified as debt orequity?…
A: We cannot categorize preferred stock as entirely debt or equity. It is a mixture and is alike bonds…
Q: The higher the debt-to-equity ratio, the less debt a company is using co finance its assets. O True…
A: Debt to equity ratio is an important leverage ratio that we use in the world of accounting and…
Q: There are advantages and disadvantages of debt financing in contrast to equity financing. Which of…
A: Debt financing has less risk as compared to equity financing, which is why the cost of debt is less…
Q: The cost of a firmʹs equity Group of answer choices a. is independent of the firmʹs capital…
A: Weighted average cost of equity includes both equity and debt.
Q: Financial risk refers to the: Multiple Choice possibility that interest rates will increase.…
A: Financial risk refers to the inability of the firms to meet its debt obligations. In the case of…
Q: In many instances, book value, rather than market value, may be used to determine the weighted…
A: The weighted average cost of capital is the cost of the all sources of funds from where the…
Q: Which statement is most correct? * A. Since debt financing raises the firm’s financial risk,…
A: Option b is correct.
Q: Company PL and company NL are identical except PL has positive financial leverage whereas NL has…
A: When Financial Leverage is Negative Then That company Return is more Volatile in Nature and…
Q: Which firm has riskier equity? Why?
A: Equity means the ownership interest of the company or the firm. Equity is arrived at by subtracting…
Q: articipate in the ownership of the firm. (b) Investors in debt are paid interest. (c) Debt is more…
A: Debt capital consists of the securities that represent lenders or financial creditors to the firm.…
Q: Generally speaking, the cost of debt is cheaper than the cost of equity. Does it imply that a firm…
A: Cost of debt is the charge which a fir must pay to the bond holder for borrowing the money. This…
Q: The risk-return trade-off in managing a firm's working capital involves a trade-off between the…
A: Working capital = Current assets - current liabilities
Q: Which of the following statements is CORRECT? * In most cases, increasing a company's debt ratio…
A: The question is multiple choice question. Required Choose the Correct Statement.
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- The cost of equity is _______. A. the interest associated with debt B. the rate of return required by investors to incentivize them to invest in a company C. the weighted average cost of capital D. equal to the amount of asset turnoverLeverage implies that a company a. contains debt financing b. contains equity financing c. has a high current ratio d. has a high earnings per shareWhich of these is a main characteristic of debt capital?(a) Investors in debt participate in the ownership of the firm.(b) Investors in debt are paid interest.(c) Debt is more risky for the investor and less risky for the firm.(d) If dividends are not paid, this can lead to foreclosure, legal proceeding and financial distress.
- Leverage is a. The ability to earn a satisfactory return on the investments in the business. b. The ability to pay current debts when they come due. c. The proportion of debt to stockholders' equity. d. Also called profit margin.What is the blend of long-term financial sources used to finance the firm which may include debt, equity and preferred stock? اخترأحد الخيارات a. Risk and Return b. Capital Budgeting c. Profit Maximization d. None of the option e. Working Capital Creditors look for a. Net working capital for their safety b. High net working capital for their safety c. Less net working capital for their safety d. None of the options e. Balance net working capital for their safetyFor each statement indicate whether it is true or false and briefly explain why. a) In a perfect capital market with no corporate taxes, as a firm takes on more and more debt its weighted average cost of capital remains unchanged while its required return on equity rises. b) If a firm issues riskfree debt the risk of the firm’s equity will not change. So, risk-free debt allows the firm to get the benefit of a low cost of debt without raising its cost of equity. c) In the context of firms’ capital structure decisions, the theory predicts that the value of a firm’s equity will rise in direct proportion to the level of debt in its capital structure.
- Which 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 SelectionWhich statement is most correct? * A. Since debt financing raises the firm’s financial risk, increasing debt ratio will increase WACC. B. Since debt financing is cheaper than equity financing, increasing debt ratio will reduce WACC. C. Increasing a firm’s debt ratio will typically reduce the marginal costs of both debt and equity financing; however, it still may raise the firm’s WACC. D. Statements a and c are correct. E. None of the aboveWhich of the following statements are true and which are false? o). High breakeven points in capital intensive industries are desirable. p). The fixed return on borrowed capital (i.e., interest) is more risky than profits paid to equity investors (i.e., stockholders) in a firm.
- Explain the effect of D/E on asset returns, equity returns (assuming that cost of debt is not affected), asset beta and equity beta (assuming that debt beta is zero). Should an investor choose to invest in a stock of a company with high or low D/E, or why expected returns on these stocks are equivalent, although they are not equal?When a profitable business has no mandated loan capital but there are non-mandated liabilities a. the return on equity always exceeds the return on total capitalb. the return on equity always equals the return on total capitalc. the return on equity may be equal to the return on total capitald. the return on equity always lags behind the return on total capitalAccording to MM propositions, which of the following statements best describes the consequence of increasing debt-to-value ratio for a firm? Group of answer choices The weighted average cost of capital can decrease. The weighted average cost of capital can increase. The cost of equity capital can decrease. The weighted average cost of capital must not stay constant.