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Linda_us
Linda_us, Finance, Accounts & Homework Tutor
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Experience:  Post Graduate Diploma in Management (MBA)
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For Linda, I have several more questions for you. 1. Different

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For Linda, I have several more questions for you.

1. Different borrowers have different risks of bankruptcy, and bankruptcy is costly to lenders. Therefore, lenders charge higher rates to borrowers judged to be more at risk of going bankrupt.
True False
2. A firm's business risk is largely determined by the financial characteristics of its industry, especially by the amount of debt the average firm in the industry uses.
True False
3 Financial risk refers to the extra risk stockholders bear as a result of using debt as compared with the risk they would bear if no debt were used.
True False
4. As the text indicates, a firm's financial risk has identifiable market risk and diversifiable risk components.
True False
5. If debt financing is used, which of the following is CORRECT? A) The percentage change in net operating income will be greater than a given percentage change in net income. B) The percentage change in net operating income will be equal to a given percentage change in net income. C) The percentage change in net income relative to the percentage change in net operating income will depend on the interest rate charged on debt. D) The percentage change in net income will be greater than the percentage change in net operating income. E) The percentage change in sales will be greater than the percentage change in EBIT, which, in turn, will be greater than the percentage change in net income.
6. Which of the following statements is CORRECT, holding other things constant? A) Firms whose assets are relatively liquid tend to have relatively low bankruptcy costs, hence they tend to use relatively little debt. B) An increase in the personal tax rate is likely to increase the debt ratio of the average corporation. C) If changes in the bankruptcy code make bankruptcy less costly to corporations, then this would likely reduce the debt ratio of the average corporation. D) An increase in the company’s degree of operating leverage is likely to encourage a company to use more debt in its capital structure. E) An increase in the corporate tax rate is likely to encourage a company to use more debt in its capital structure.
Submitted: 3 years ago.
Category: Homework
Expert:  Linda_us replied 3 years ago.
Hi JACUSTOMER

Thanks for requesting me your questions. Whats your deadline for these questions?

Regards

Linda
Customer: replied 3 years ago.
Monday evening would be great.
Expert:  Linda_us replied 3 years ago.
Thats great, I will post all the solution by tomorrow morning. Thanks for your trust.
Expert:  Linda_us replied 3 years ago.
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Linda_us, Finance, Accounts & Homework Tutor
Category: Homework
Satisfied Customers: 7105
Experience: Post Graduate Diploma in Management (MBA)
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