You are trying to decide whether the debt structure that Bethlehem Steel has currently is appropriate, given its assets. You regress the changes in firm value against changes in interest rates and arrive at the following equation
Change in Firm Value = 0.20% − 6.33 (Change in Interest Rates)
a. If Bethlehem Steel has primarily short-term debt outstanding, with a maturity of one year, would you deem the debt structure appropriate?
b. Why might Bethlehem Steel be inclined to use short-term debt to finance long-term assets?