A Firm Is Analyzing Two Possible Capital Structures-30 and 50

question 42

Multiple Choice

A firm is analyzing two possible capital structures-30 and 50 percent debt ratios. The firm has totalassets of $5,000,000 and common stock valued at $50 per share. The firm has a marginal tax rate of40 percent on ordinary income. The number of common shares outstanding for each of the capital structures would be

• A) 30 percent debt ratio: 50,000 shares and 50 percent debt ratio: 70,000 shares.
• B) 30 percent debt ratio: 70,000 shares and 50 percent debt ratio: 100,000 shares.
• C) 30 percent debt ratio: 70,000 shares and 50 percent debt ratio: 50,000 shares.
• D) 30 percent debt ratio: 30,000 shares and 50 percent debt ratio: 50,000 shares.

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Definitions:

Legislators

Elected or appointed officials who have the authority to make and change laws within a government.

Coalitions

Alliances formed between various groups, organizations, or countries to achieve a common goal or address a shared concern.

Temporary Associations

Groups or organizations formed for a specific, short-term purpose, dissolving after the goal is achieved.

Issue

A subject or problem that is under discussion or over which there are opposing views or disagreements.