The pressure of corporate debt repayment has increased year by year, and the total profit has also increased, but the profit attributable to shareholders has a relatively large range. Is this business normal?
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- Which statement is correct?a. The cost of debt is determined by taking the present value of the interest payments and principal times one minus the tax rate.b. The difference in computing the cost of capital between using the accumulated profits and issuance of new ordinary shares is the growth rate.c. Increase in flotation costs, increase in the company’s beta and increase in the expected inflation will all lead to d. increase the company’s weighted average cost of capital.e. Increasing the company’s dividend payout would mitigate the company’s need to raise new ordinary shares.f. none of the aboveWhich of the following is a disadvantage of long-term debt as a means of company financing? Group of answer choices Debtholders have preferential status in the event of a company being wound up. Tax relief is available on interest payments. Debt is often quicker to arrange compared to equity. The amount and timing of interest payments is predictable, making budgeting easier.Which one of the following factors might cause a firm to increase the debt in its financial structure?A. An increase in the corporate income tax rate.B. Increased economic uncertainty.C. An increase in the federal funds rate.D. An increase in the price-earnings ratio.
- Why does the WACC decrease as a company begins to take on debt and then increase after a certain point?You observe that a firm?s profit margin is below the industry average, while its return on equity and debt ratio exceed the industry average. What can you conclude?Which of the following events is most likely to encourage a firm to INCREASE the amount of debt in its capital structure with other things held constant? Group of answer choices: Management believes that the firm's stock has become overvalued. Its sales become more stable over time. Its degree of operating leverage increases. The costs that would be incurred in the event of bankruptcy increase. The corporate tax rate decreases.
- Which of the following would increase the likelihood that a company would increase its debt ratio, other things held constant? a. An increase in the corporate tax rate. b. An increase in the personal tax rate. c. The Federal Reserve tightens interest rates in an effort to fight inflation. d. The company's stock price hits a new low. e. An increase in costs incurred when filing for bankruptcy. Explain your answerWhich of the following is true regarding a company assuming more debt? Select one: a. Assuming more debt is always bad for the company b. Assuming more debt reduces leverage c. Assuming more debt can be good for the company as long as they earn a return in excess of the rate charged on the borrowed funds d. Assuming more debt is always good for the companyWhich of the following will increase the WACC for a tax-paying company? Decrease the proportion of equity financing Decrease the proportion of debt financing Decrease the market value of the equity Increase the market value of the debt
- Which of the following situation in which the quality of the company’s pay-out to shareholders may decline a. Decrease in cash position b. Increase in positive NPV investment opportunities c. Increase in capital gains tax d. Decrease in marginal tax rate on dividends Which of the following concepts tells us that dividends are to be paid only when the capital budget has been already supplied? a. Gordon Growth model b. Dividend irrelevance theory c. Retain Earnings break-point principle d. Residual Dividend Model7. Which of the following is true: a. If two companies have the same ROA, the firm with higher debt may have a lower ROE b. Other factors remain unchanged, if DSO increases it may cause total asset turnover (TATO) increase. c. A company's debt ratio increases, revenue and operating costs remain constant, which can lead to lower margins. d. The ratio of long-term debt to total equity seems fluctuate more seasonally than its DSO or inventory turnover.Bolton Company substantially increased its allowance for bad debt. Which of the following effects will occur? Question options: It will reduce the current ratio. It will increase the acid test ratio. It will increase working capital. It will reduce its dividend payout ratio.