Dynamic Electronics, Inc., a successful and high-growth company, consistently experiences a favorable difference between the rate of return on its assets and the interest rate paid on borrowed funds. Explain why this company should not increase its debt to the 90% level of total capitalization and thereby minimize any need for equity financing.
Answer to relevant QuestionsHow should we treat deferred income taxes in an analysis of capital structure? a. Why might an analysis of financial statements need to adjust the book value of assets?b. Give three examples of the need for possible adjustments to book value.A company you are analyzing has a purchase commitment of raw materials under a noncancelable contract that is substantial in amount. Under what conditions do you include this purchase commitment in computing fixed charges? Assume a company under analysis has few current liabilities but substantial long-term liabilities. Notes to the financial statements report the company has a “revolving loan agreement” with a bank. Is this disclosure ...The Lux Company experiences the following unrelated events and transactions during Year 1.The company's existing current ratio is 2:1 and its quick ratio is 1.2:1.1. Lux wrote off $5,000 of accounts receivable as ...
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