Which statements are correct? If a firms debt is risky, increasing the level of debt: I. Has
Question:
Which statements are correct? If a firm’s debt is risky, increasing the level of debt:
I. Has no impact on its financial strength.
II. Could lead to an increase in its cost of debt.
III. Is always beneficial to both its debt- and equity-holders.
IV. Beneficial to its equity holders if the cost of debt remains lower than ROIC. Which statements are correct? If a firm’s debt is risky, increasing the level of debt: I. Has no impact on its financial strength. II. This could lead to an increase in its cost of debt. III. Is always beneficial to both its debt- and equity-holders. IV. Beneficial to its equity holders if the cost of debt remains lower than ROIC.
A - 1 and 3, only
B - 2 and 4, only
C - 1 and 4, only
D - 3 and 4, only
Microeconomics Theory and Applications
ISBN: 978-1118758878
12th edition
Authors: Edgar K. Browning, Mark A. Zupan