If Abercrombie & Fitch Borrows $8 Million from a Bank

question 50

Multiple Choice

If Abercrombie & Fitch borrows $8 million from a bank to finance the construction of a new store, this is an example of

• A)a stock market transaction.
• B)direct finance.
• C)a bond market transaction.
• D)indirect finance.

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Definitions:

Levered Cost of Capital

The cost of capital for a company that has debt in its capital structure, reflecting the additional risk introduced by the use of debt.

Debt-equity Ratio

A gauge for the relative amounts of shareholders' equity and debt in a company's asset financing approach.

Interest Tax Shield

The reduction in income taxes that results from taking the allowable interest expense deductions from taxable income.

Financial Distress Costs

Expenses incurred by a firm facing financial difficulties, including legal, administrative, and potentially bankruptcy-related costs.