On-The-Fence Co

question 28

Multiple Choice

On-the-Fence Co.(OTF) is considering issuing an additional $5,000,000 perpetual debt.It is subject to a 35% marginal corporate tax rate but is being told that the costs of financial distress on that additional debt is $1,000,000.What should OTF do?

• A) Do not issue the debt
• B) Issue the debt
• C) It doesn't matter what it does as M&M with perfect markets holds
• D) none of the above

Grasp the concept of working capital decisions in financial planning.

Define and incorporate various finance-specific terms, such as planning horizon, debt capacity, and capital intensity ratio, into financial planning.

Explain the rationale and benefits of financial planning, despite inherent uncertainties.

Identify the elements that must be incorporated into effective financial planning.

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Definitions:

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