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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Q: Is there an easily identifiable debt-equity ratio that will maximize the value of a firm?
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Discuss the following statement: All else equal, firms with relatively stable sales are able to
carry relatively high debt ratios. Is the statement true or false? Why?
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- Why is the following statement true? “Other things being the same, firmswith relatively stable sales are able to carry relatively high debt ratios.”"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. FalseIs there an easily identifiable debt-equity ratio that will maximize the value of a firm? Why or why not? You need to support your answers with examples.
- Is this statement true or false? Please explain in detail As debt-financing is usually cheaper than equity financing, debt-financing will lower risk for transnational company.Why might it make sense for a mature, slow-growth company to have a high debt ratio?Based on these calculations, which company appears to be more risky and which company appears to be more profitable? How can you tell? (Keep in mind that the current ratio and debt to equity ratio are "risk ratios" and the gross profit ratio and return on equity ratio are "profitability ratios").
- Which 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 companyWhich 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 is correct?(a) The quickest way to determine whether the firmhas too much debt is to calculate the Timesinterest-earned ratio.(b) The best rule of thumb for determining the firm’sliquidity is to calculate the current ratio.(c) From an investor’s point of view, the price-toearnings ratio is a good indicator of whether ornot a firm is generating an acceptable return tothe investor.(d) The operating margin is determined by subtracting all operating and non-operating expensesfrom the gross margin.
- 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. FalseWhich of the following statements are true about the interest-burden ratio? Check all that apply: If the company has no financial leverage, the interest-burden ratio will be equal to 1. 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 0. It can be expressed as Net profits/Pretax profits. It can be expressed as EBIT/Interest Expense.Which of the following statements is false?(a) The quickest way to determine whether a firm has too much debt is to calculate the debt-to-equity ratio.(b) The best guideline to determine the firm's liquidity is to calculate the current ratio.(c) From the investor's point of view, the rate of return on common equity is a good indicator of whether the firm is generating an acceptable return to the investor.( d) We can determine the operating margin by expressing net income as a percentage of total sales.