GROWTH COMPANY HAS EXISTING DEBT ISSUED THREE YEARS AGO WITH A COUPON RATE OF 6%....
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GROWTH COMPANY HAS EXISTING DEBT ISSUED THREE YEARS AGO WITH A COUPON RATE OF 6%. THE FIRM JUST ISSUED, NEW, OTHERWISE IDENTICAL DEBT AT PAR WITH A COUPON RATE OF 6.5% THUS FOR GROWTHS COMPANY'S PRE-TAX COST OF DEBT, IT SHOULD USE A WEIGHTED AVERAGE OF 6.0% AND 6.5%
TRUE OF FALSE
WHEN A COMPANY OR AN ECONOMY CHOOSES TO GROW ATA SLOWER RATE, THE EFFECT OF LOWER GROWTH MAY SEEM RELATIVELY SMALL AT FIRST, BUT THE CUMULATIVE EFFECT BECOMES LARGER AND LARGER OVER TIME, THUS HAVING A RELATIVELY MAJOR EFFECT IN THE LONG RUN
TRUE OR FALSE
SUPPOSE YOU ARE EVALUATING TWO COMPANIES ONE IS AN ADVERTISING AGENCY, THE OTHER ISA TRUCKING COMPANY WHOSE CHIEF ASSET IS ITS FLEET OF TRUCKS. WHICH OF THESE TWO COMPANIES IA LIKELY TO HAVE PROPORTIONALLY HIGHER DEAD-WEIGHT BANKRUPTCY?
EITHER DEBT OR DIVIDENDS MAY BE USED TO SIGNAL THE FIRMS VALUE BUT DEBT IS MORE CREDIBLE SIGNAL BECAUSE IT IS RISKIER DUE TO THE COST OF FINANCIAL DISTRESS
TRUE OR FALSE
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