A Firm with No Leases Has a Long-Term Debt-Equity Ratio

question 43

Multiple Choice

A firm with no leases has a long-term debt-equity ratio of 50%.This means that the book value of equity:

• A)equals the book value of long-term debt.
• B)is less than the book value of long-term debt.
• C)is greater than the book value of long-term debt.
• D)is unknown in relation to the book value of long-term debt.

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Definitions:

Capital Investment Analysis

The process of evaluating and selecting long-term investments consistent with the firm's goal of wealth maximization.

Cash Payback Period

the duration required to recover the cost of an investment through cash flows generated by the investment.

Annual Net Cash Inflow

The net amount of cash that flows into a company in a year after all expenses and outflows have been subtracted from total inflows.

Capital Rationing

The process of selecting the most profitable projects to invest in when a company has limited resources or capital available.