The Supply Depot Is Considering Issuing $1 Million in Bonds

question 54

Multiple Choice

The Supply Depot is considering issuing $1 million in bonds but their financial staff has advised that if they do,the value of the firm will decrease.Given this advice,you know the staff believes the firm:

• A)currently is all-equity financed and adding debt will cause a decrease in firm value.
• B)wants to issue too few bonds to obtain the most benefit from debt.
• C)will suffer from a decrease in its WACC if the bonds are issued.
• D)is at,or has exceeded,its optimal debt-equity ratio.
• E)will realize greater tax benefits by issuing equity securities.

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