A Corporation's Debt Capacity Is the Maximum Proportion of Debt

question 133

True/False

A corporation's debt capacity is the maximum proportion of debt that the corporation can include in its capital structure and still maintain its lowest composite cost of capital.

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Definitions:

Operating Cash Flow

Represents the amount of cash generated by a company's normal business operations.

Interest Expense

The cost incurred by an entity for borrowed funds.

Tax Rate

The proportion of income or profits taken as tax by the government from an individual or company.

Straight-Line Depreciation

A blueprint for allocating the expense of a solid asset across its useful life in even yearly installments.