Homework Answers
The correct answers is option A
The company raise debt for the capital infusion in the project but it affect the company earning negatively as the company has to make compulsory interest payment to them which increase the chance of bankruptcy.
When the earning of the company is affected the shared price is affected as the expected rate of return to shareholders is lowered.
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Question 5 (1 point) Which of the following statements is correct? OA) The use of debt...
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Why focus on the optimal capital structure? A company's capital structure decisions address the ways a firm's assets are financed (using debt, preferred stock and common equity capital) and is often presented as a percentage of the type of financing used As with all financial decisions, the firm should try to set a capital structure that maximizes the stock price, or shareholder value. This is called the optimal capital structure Which of the following statements regarding a firm's optimal capital...
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Select the correct term for each of the following descriptions. These are not necessarily complete definitions,...
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13. Which of the following statements is correct? a. Any forecast of financial requirements involves determining how much money the firm will need and is obtained by adding together increases in asset...
13. Which of the following statements is correct? a. Any forecast of financial requirements involves determining how much money the firm will need and is obtained by adding together increases in assets and spontaneous liabilities and subtracting operating income. b. The projected balance sheet method of forecasting financial needs requires only a forecast of the firm's balance sheet. Although a forecasted income statement helps clarify the financing needs, it is not essential to the balance sheet method. c. Because dividends...
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Companies that use debt in their capital structure are said to be using financial leverage. Using...
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Why focus on the optimal capital structure? A company's capital structure decisions address the ways a firm's assets are financed (using debt, preferred stock and common equity capital) and is often presented as a percentage of the type of financing used As with all financial decisions, the firm should try to set a capital structure that maximizes the stock price, or shareholder value. This is called the optimal capital structure Which of the following statements regarding a firm's optimal capital...
Which of the following statements is CORRECT? If a company were to issue debt and use the money to repurchase common stock, this action would have no impact on the company's return on assets. (Assume that the repurchase has no impact on the company's operating income.) The debt ratio that maximizes EPS generally exceeds the debt ratio that maximizes share price. Increasing financial leverage is one way to increase a firm's basic earning power (BEP). Firms with lower fixed costs...
Long-term debt offers advantages and disadvantages to the issuing firm and to the investor in debt securities. Examine the following two statements and indicate whether each represents an advantage or a disadvantage to the or the investor issuer By being classed as creditors, debtholders Debt securities can increase the issuer's have priority in cash flows and assets as earnings per share, everything else remaining constant compared with shareholders. Does the preceding statement indicate an Does the preceding statement indicate an...
Which of the following statements is CORRECT? a. Relative to sole proprietorships, corporations generally face fewer regulations, and they also find it easier to raise capital. Stockholders should generally be happier than bondholders to have managers invest in risky projects with high potential returns as opposed to safe projects with lower expected returns. There is no good reason to expect a firm's stockholders and bondholders to react differently to the types of assets in which it C. invests. Bondholders should...
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