Question

The extent of financial leverage in a firm Debt ratios measure the proportion of total assets financed by a firm's creditors. Cute Camel Woodcraft Company has a debt-to-equity ratio of 3.80, compared to the industry average of 3.04. Its competitor Purple Lemon Woodcrafters, however, has a debt-to-equity ratio of 5.70. Based on what debt-to-equity ratios imply, which of the following statements is true? Purple Lemon's creditors face lesser risk than the average financial risk in the industry. Purple Lemon has greater financial risk as compared to Cute Camel and to the average financial risk in the industry. paple Lemon has higher creditworthiness as compared to Cute Camel Cute Camel's shareholders expect magnified returns but higher risk as compared to Purple Lemon. Suppose the stock price of Cute Camel Woodcraft Company falls by 10%. What impact will it have on its market-to-debt ratio if nothing changes in the company's balance sheet The market debt ratio will increase, reflecting an increase in the financial risk of the company. ch o e Mind top Cengag

Answer 1

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12 e 27 * 9W ? v . 1* 23:52 ENG 01-03-2070 24 CG63 CG CH a a CK CL CM CN co CP e purple lemon has highest debt equity ratio which implies higher financial risk for equity shareholders In boom period, purple lemon may give higher returns but otherwise has higher risk for even creditors as firm may not be in a position to repay. so correct answer purple lemon has greater financial risk as comapred to cute camel and to the avergae financial risk in the industry ... CASH BUDGET budget 45 days cycle ROE, BV MV ratio VARIANCE BEP, OL FL ratios DETROIT float B-S profit loss SALES BUDGET dupont ... :