Financial Management (Chapter 15

Suppose we compute a times interest earned percentage of 29 for Colgate-Palmolive. Colgate-Palmolive might experience some difficulty meeting its interest payments. Colgate-Palmolive is most unlikely to have a problem meeting its interest payments. 29 of operating cash flow for every dollar of interest expenditure. Colgate-Palmolive’s EBITDA is 29 times larger than its interest expense. 10 million. Its Debt to Business Value percentage is .5.

What is the publication value of Merrimac’s interest- bearing debts? 10 million. Its Debt to Business Value proportion is .5. What’s Merrimac’s Debt Ratio? 10 million. There is absolutely no preferred stock. What is the publication value of interest-bearing debts? Financial structure includes only interest bearing debt. Capital structure includes only non-interest bearing personal debt. Financial framework uses market values of equity.

Capital framework includes only interest bearing personal debt. Financial framework includes long-term and short-term sources of money. A firm’s financial framework is defined by the Debt Ratio, while its capital framework is defined by your debt to Value ratio. THE DAYS Interest Earned Ratio procedures a firm’s capability to meet both interest obligations and scheduled primary repayments. Your debt ratio is computed using publication values for both personal debt and equity usually.

Debt ratios and personal debt to enterprise value ratios differ widely in one industry to another. Answer: If a firm can earn a higher rate of come back on its ventures than it will pay in interest on borrowed money, the difference goes to the firm’s owners, its shareholders. The additional money earned may cause Return on Equity to be greater than Return on Assets. Essentially, the firm is using “other’s money” to make money for its owners. Leverage can also work backwards.

Interest is a fixed cost. It must be paid to set up a company has sufficient revenue. When the speed of return on investments is lower that the interest on borrowing, leverage is said to be “unfavorable” and come back on the owner’s collateral will be reduced by the difference. Answer: First, the debt to assets ratio uses book beliefs.

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Book beliefs for debts in the numerator are usually near to market values, however the asset ideals used in the denominator tend to be distorted by inflation and, in any case, do not signify the true value of the company. YOUR DEBT to Value percentage has a smaller numerator, because non-interest bearing debt is excluded, and a larger denominator because for a wholesome firm, the marketplace value of the collateral will be significantly greater than the book value. 120 million. Compute Bipolar’s Debt Ratio and Debt to Value Ratio. A and C are true.

From the information below, select the optimal capital framework for Mountain High Corp. The expense of capital continuously decreases as the firm’s personal debt ratio increases. The expense of capital remains continuous as the firm’s debts ratio increases. There are no costs associated with personal bankruptcy. There is an optimal degree of debt financing.

A high personal debt ratio will lead to a maximum price of a firm’s common stock. A firm’s common stock price will not be affected by the amount of debt a company uses. A minimal debt ratio will result in a maximum price for a firm’s common stock. Modest degrees of debt have a more favorable effect on a firm’s average cost of capital and stock price than no debts. A firm’s amalgamated cost of capital decreases as financial leverage is used.