Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Chapter 23, Problem 4PS
Summary Introduction
To determine: The higher probability of default.
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Short-term creditors would probably most interested in which ratio? a. Current ratio c. Debt-to-equity ratio b. Earnings per share d. Quick ratio
Which one of the following is a measure of long term solvency?
A. Price earning ratio
B. Profit margin
C. Cash coverage ratio
D. Receivables turnover
E. Quick ratio
Which one of the following ratios is relevant to assess long-term solvency?
A. Current Ratio
B. Debt-Service Coverage Ratio
C. Return on Equity
D. Profit Margin
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Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
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- Which one of the proportions of debt in the following chart is the optimal level? Firm Value Vu+ TD A B OD OC A B C -Vu + TD - Financial Distress Costs D Proportion of Debtarrow_forward1. Provide a Short-term Solvency Ratio Analysis based on D/E Ratio, Equity Ratio, and Debt ratio. 2. Provide a Long-term Solvency Ratio Analysis based on D/E Ratio and Debt Ratio.arrow_forwardA general question about ratios: do you think that a ratio can be too high or too low? Why or why not? To help you focus start with the debt to equity and then the current ratio Think a little deeper - What does the Current ratio (or amount of Working Capital tell us)? Hint - what do we expect to happen to current assets and current liabilities?arrow_forward
- The ratio that measures how much an investor is willing to pay for a dollar of earnings is known as a _____________ ratio. A. asset management B. market value C. profitabilityarrow_forwardInflation can have significant effects on income statements and balance sheets, and therefore on the calculation of ratios. Discuss the possible impact of inflation on the following ratios, and explain the direction of the impact based on your assumptions. Return on investment Inventory turnover Fixed asset turnover Debt-to-assets ratioarrow_forwardQuestion 3:- What are the two different formulas used to Calculate the degree of financial leverage (DFL)? What is common-size financial statement analysis? What are Market Value Ratios?arrow_forward
- An investor concerned whether a company can meet its near-term obligations is most likelyto calculate the:A . current ratio.arrow_forwardWhich of the following is one measure of liquidity? a. Quick ratio b. Profit margin c. Times ineterst earned d. Debt-to-equity ratiarrow_forwardThe debt ratio is used primarily as a measure of: Short-term liquidity. Profitability. Creditors' long-term risk. Return on Investment.arrow_forward
- What are the importance of the following financial ratios? • Price to earnings ratio. • Earnings per share. Note: Own answer •Return on equity ratio.arrow_forwardOther elements being constant, the increase in an “interest receivable” account will lead to the increase in Group of answer choices The Debt Ratio The Cash Ratio The Quick Ratio The long-term Debt Ratioarrow_forwardCalculate the projected debt ratio, debt-to-equity ratio, liabilities-to-assets ratio, times-interest-earned ratio, and EBITDA coverage ratios. How does Computron compare with the industry with respect to financial leverage? What can you conclude from these ratios?arrow_forward
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