Your Firm Uses Both Preferred and Common Stock as Well

question 152

Multiple Choice

Your firm uses both preferred and common stock as well as long-term debt to finance its operations. Which one of the following will increase the capital structure weight of the debt, all else equal?

• A) An increase in the market price of the common stock.
• B) An increase in the number of shares of preferred stock outstanding.
• C) An increase in the quoted price of the firm's bonds as a %age of face value.
• D) The exercise of warrants by company employees.
• E) The conversion of convertible bonds into equity shares.

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Definitions:

Operating Cash Flow

The cash generated from the normal operating activities of a business, reflecting its ability to generate sufficient cash to fund its operations.

Variable Cost

Expenditures that fluctuate based on the volume of goods or services provided by a business.

Cash Break-Even

The point at which a company's cash inflows match its cash outflows, indicating no net gain or loss.

Fixed Costs

Costs that do not vary with the level of production or sales, remaining constant regardless of business activity levels.