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The benefits of debt financing over equity financing are likely to be
highest in which of the following situations?
Question 3 (RMCB-0027)
Which of the following describes an option?
Question 4 (FINM-0034)
A company has $1,500,000 of outstanding debt and $1,000,000 of
outstanding common equity. Management plans to maintain the
same proportions of financing from each source if additional
projects are undertaken. If the company expects to have $60,000 of
retained earnings available for reinvestment in new projects in the
coming year, what dollar amount of new investments can be
undertaken without issuing new equity?
Value of equity
Value of debt + Value of equity
Since the question states that the firm will maintain the same weight
of each financing source, each dollar invested is composed of 40
cents of equity and 60 cents of debt. The first $60,000 of equity used
in financing new projects is sourced from retained earnings. This
source of equity is exhausted when the firm reaches an investment
level of
$60,000 / .4 = $150,000.When the level of investment exceeds this
amount, equity financing must be raised externally.
Question 5 (FINM-0024)
DQZ Telecom is considering a project for the coming year that will
cost $50,000,000. DQZ plans to use the following combination of
debt and equity to finance the investment:
Question 6 (RMCB-0026)
Which of the following describes a normal yield curve?