Homework Answers
| Option D is the answer | |
| Financial risk is a risk associated with the ability of the company to generate adequate cash flows to meet the interest payment and principal payments of the debt financing. | |
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Financial risk is the risk associated with: O ownership in a corporation O equity financing O...
Which of the following statements is CORRECT? Since debt financing is cheaper than equity financing, raising...
Which of the following statements is CORRECT? Since debt financing is cheaper than equity financing, raising a company's debt ratio will always reduce its WACC Increasing a company's debt ratio will typically reduce the marginal cost of both debt and equity financing; however, this action still may raise the company's WACC Increasing a company's debt ratio will typically increase the marginal cost of both debt and equity financing; however, this action still may lower the company's WACC Since a firm's...
9. Business and financial risk The impact of financial leverage on return on equity and earnings...
9. Business and financial risk The impact of financial leverage on return on equity and earnings per share Consider the following case of Free Spirit Industries Inc.: Suppose Free Spirit Industries Inc. is considering a project that will require $250,000 in assets. • The company is small, so it is exempt from the interest deduction limitation under the new tax law. • The project is expected to produce earnings before interest and taxes (EBIT) of $50,000. • Common equity outstanding...
Business and financial risk The impact of financial leverage on return on equity and earnings per...
Business and financial risk The impact of financial leverage on return on equity and earnings per share Consider the following case of Happy Turtle Transportation Company: Suppose Happy Turtle Transportation Company is considering a project that will require $300,000 in assets. • The company is small, so it is exempt from the interest deduction limitation under the new tax law. • The project is expected to produce earnings before interest and taxes (EBIT) of $55,000. • Common equity outstanding will...
Analyze at least two advantages of debt financing over equity financing for a corporation. Discuss your...
Analyze at least two advantages of debt financing over equity financing for a corporation. Discuss your choice of financing and provide support for your choice.
The difference between equity financing and debt financing is that equity financing involves borrowing money. equity...
The difference between equity financing and debt financing is that equity financing involves borrowing money. equity financing involves selling part of the company. debt financing involves selling part of the company. debt financing means the company has no debt.
T or F If a firm uses no debt, risk of equity is financial risk, not...
T or F If a firm uses no debt, risk of equity is financial risk, not business risk. a. True b. False
Which of the following statements is true of the debt to equity ratio? A. The higher the debt to equity ratio, the gre...
Which of the following statements is true of the debt to equity ratio? A. The higher the debt to equity ratio, the greater the company's financial risk. B. If the debt to equity ratio is less than 1, the company is financing more assets with debt than with equity. C. If the debt to equity ratio is greater than 1, the company is financing more assets with equity than with debt. D. The higher the debt to equity ratio, the...
A difference between debt financing and equity financing is that: Multiple Choice debt financing must be...
A difference between debt financing and equity financing is that: Multiple Choice debt financing must be repaid, while repayment of equity financing is not required. equity financing must be repaid, while repayment of debt financing is not required. only debt financing can be used to purchase assets. only equity financing can be used to purchase assets.
Question 48 1 pts The current debt-to-equity ratio of Crimson Corporation is 2.5. The company has...
Question 48 1 pts The current debt-to-equity ratio of Crimson Corporation is 2.5. The company has failed to give a comprehensive estimate of its target capital structure. The other financial details of the company are as follows: $250,000 $100,000 $350,000 $400,000 Book value of debt Book value of equity Market value of debt Market value of equity Current yield of debt Yield to maturity of debt Effective tax rate Marginal tax rate Equity risk premium 7.50% 3096 35% 4.50% The...
On May 1, Burns Corporation acquired 100 percent of the outstanding ownership shares of Quigley Corporation...
On May 1, Burns Corporation acquired 100 percent of the outstanding ownership shares of Quigley Corporation in exchange for $710,000 cash. At the acquisition date, Quigley's book and fair values were as follows: Cash Receivables Inventory Land Building and equipment (net) Patented technology Total assets Accounts payable Long-term liabilities Common stock ($5 par value) Additional paid-in capital Retained earnings Total liabilities and stockholders equity Book Value Fair Value $ 95,000 $ 95,000 200,000 200,000 210,000 260,000 130,000 110,000 270,000 330,000...
A difference between debt financing and equity financing is that: Multiple Choice debt financing must be repaid, while repayment of equity financing is not required. equity financing must be repaid, while repayment of debt financing is not required. only debt financing can be used to purchase assets. only equity financing can be used to purchase assets.
Question 48 1 pts The current debt-to-equity ratio of Crimson Corporation is 2.5. The company has failed to give a comprehensive estimate of its target capital structure. The other financial details of the company are as follows: $250,000 $100,000 $350,000 $400,000 Book value of debt Book value of equity Market value of debt Market value of equity Current yield of debt Yield to maturity of debt Effective tax rate Marginal tax rate Equity risk premium 7.50% 3096 35% 4.50% The...
On May 1, Burns Corporation acquired 100 percent of the outstanding ownership shares of Quigley Corporation in exchange for $710,000 cash. At the acquisition date, Quigley's book and fair values were as follows: Cash Receivables Inventory Land Building and equipment (net) Patented technology Total assets Accounts payable Long-term liabilities Common stock ($5 par value) Additional paid-in capital Retained earnings Total liabilities and stockholders equity Book Value Fair Value $ 95,000 $ 95,000 200,000 200,000 210,000 260,000 130,000 110,000 270,000 330,000...
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