Assume That a Firm's Financial Analysts Determine That a Decrease

question 99

True/False

Assume that a firm's financial analysts determine that a decrease in the firm's debt-to-assets ratio will cause a decrease in both the component cost of debt r_d(1 − T)and the component cost of equity (r_s).This information tells us that the firm's present debt-to-assets ratio is above its optimal ratio.

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Definitions:

Moral Obligation

A responsibility or duty which is ethically binding but not legally enforceable.

Consideration

In contract law, consideration refers to something of value that is exchanged between parties entering into a contract, often seen as the reason or incentive for a party to enter into an agreement.

Comatose

A state of deep unconsciousness in which a person cannot be awakened; typically resulting from illness or injury.

Output Contracts

An agreement in which a producer agrees to sell all of a specific production to a buyer.