The Use of Debt in the Firm's Capital Structure Will

question 62

Multiple Choice

The use of debt in the firm's capital structure will increase ROE if the firm:

• A) has more debt than equity.
• B) pays less in taxes than in interest.
• C) earns a higher return than the rate paid on debt.
• D) has a times interest earned ratio greater than 1.0.

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Definitions:

Situation

An environmental or contextual condition affecting decisions, actions, or outcomes.

Top Management

Top management consists of the senior-most executives of an organization, involved in setting the company's strategic direction and policies.

Structure

The arrangement or organization of components that makes up an object or system.

Culture

The shared beliefs, values, norms, and practices that characterize a group of people or a society.