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.”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.Why might it make sense for a mature, slow-growth company to have a high debt ratio?
- Which 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.Is 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.According 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.
- If Company A uses more debt than Company B and both companies have identical operations in terms of sales, operating costs, etc., which of the following statements is true?(a) Company B will definitely have a higher current ratio.(b) Company B has a higher profit margin on sales than Company A.(c) The two companies have an identical profit margin on sales.(d) Company B's return on total assets would be higher.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.Which 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.
- Which of the following is incorrect about the Pecking Order Theory? A.Firms with high ratios of fixed assets to total assets tend to have higher debt ratios.This evidence exclusively supports the pecking order theory B.When external finance is required,firms issue debt first and equity as a last resort C.Most profitable firms borrow less not because they have lower target debt ratios but beause they don't need external finance D.Firms prefer internal finance since funds can be raised without sending adverse signalsDu 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?Which of the following statements is usually correct? A low receivables turnover is good for the business The lower the total debt-to-equity ratio, the lower the financial risk for a firm The higher the tax rate for a firm, the lower the interest coverage ratio An increase in net profit margin with no change in sales or assets means a poor ROI