Question

4 When considering the impact of distress costs on capital structure, which of the following facts should lead ABC Corporation to set a higher target debt ratio than XYZ Corporation (all else equal)? Multiple Choice ABC's cash flows from operations are less volatile than XYZ's. O ABC is a computer software firm, and XYZ is an electric utility O ABC operates in a more competitive industry than XYZ O ABC's assets have lower resale values than XYZ's assets.

Answer 1

Asset heavy business should have more debt than compared to an asset-light business.
Electricity utility business is more asset-heavy than a software company.

A higher competitive business should have less debt.

A more stable business can have higher debt.

Answer a. ABC cash flow less volatile than XYZ.