What Proportion of the Firm Is Financed by Debt for a Firm

question 38

Multiple Choice

What proportion of the firm is financed by debt for a firm that expects a 15% return on equity, a 12% return on assets, and a 10% return on debt? The tax rate is 25%.

• A)20%
• B)1/3
• C)60%
• D)2/3
• E)80%

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Definitions:

Goodwill

An intangible asset representing the value of a business's reputation, brand, or positive customer relations, often considered during acquisitions.

Indirect Claims

Assertions or statements that imply something without saying it directly, often used to suggest an idea subtly.

Disappointment

Disappointment is a feeling of dissatisfaction that arises when expectations or hopes are not met.

Positive Buffer

Positive buffer is a technique used in communication to soften the impact of negative news or feedback with preceding positive statements.