What Three Factors Are Important to Consider in Determining a Target

question 50

Multiple Choice

What three factors are important to consider in determining a target debt to equity ratio?

• A) Taxes, asset types, and pecking order and financial slack.
• B) Asset types, uncertainty of operating income, and pecking order and financial slack.
• C) Taxes, financial slack and pecking order, and uncertainty of operating income.
• D) Taxes, asset types, and uncertainty of operating income.

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Definitions:

Valuation

The process of determining the present value of an asset or a company based on earnings, assets, and market comparisons.

Required Return

The minimum expected yield by investors to justify the risk of the investment.

Independent Projects

Investment projects whose cash flows are not affected by the accept or reject decision for any other project, allowing for independent evaluation.

IRR

Internal Rate of Return, a financial metric used to estimate the profitability of potential investments through calculating the rate of return where the net present value of all the cash flows (both positive and negative) from a project or investment equal zero.