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:

Core Values

Fundamental beliefs or principles that guide an organization's or individual's actions and decisions.

Relevant To

Pertaining to or connected with the matter at hand or the subject being considered.

Transactional Leadership

A management style focused on supervision, organization, and performance, where leaders promote compliance through rewards and punishments.

Rewards

Benefits, whether tangible or intangible, given to individuals as recognition for their efforts, achievements, or behavior.