chp 20-03

20: End-ot-Chapter Problems - Leverage Fill in the table using the following information. Assets required for operation: $10,200 Firm A uses only equity financing Firm B uses 40% debt with a 6% interest rate and 60% equity Firm C uses 50% debt with a 10% interest rate and 50% equity Firm D uses 50% preferred stock financing with a dividend rate of 10% and 50% equity financing Earnings before interest and taxes: $1,530 If your answer is zero, enter " 0 ", Round your answers for monetary values to the nearest cent. Round your answers for percentage values to one decimal place, What happens to the common stockholders' return on equity as the amount of debt increases? Why is the rate of interest greater in case C? Why is the return lower when the firm uses preferred stock instead of debt? Other things equal, the return on common stock as the firm uses financial leverage. As the firm becomes financially leveraged in financial rik ), the rate of interest will increase. The return is lower when the firm uses preferred stock instead of debt because the are not tax deductible as opposed to the Which type of financing involves less risk for the firm? Assuming a comparable use, is less risky to the firm