Suppose International Digital Technologies Decides to Raise a Total of $200

question 75

Multiple Choice

Suppose International Digital Technologies decides to raise a total of $200 million, with $100 million as long-term debt and $100 million as common equity. The debt can be mortgage bonds or debentures, but by an iron-clad provision in its charter, the company can never raise any additional debt beyond the original $100 million. Given these conditions, which of the following statements is CORRECT?

• A) if the debt were raised by issuing $50 million of debentures and $50 million of first mortgage bonds, we could be certain that the firm's total interest expense would be lower than if the debt were raised by issuing $100 million of debentures.
• B) in this situation, we cannot tell for sure how, or whether, the firm's total interest expense on the $100 million of debt would be affected by the mix of debentures versus first mortgage bonds. the interest rate on each of the two types of bonds would increase as the percentage of mortgage bonds used was increased, but the result might well be such that the firm's total interest charges would not be affected materially by the mix between the two.
• C) the higher the percentage of debentures, the greater the risk borne by each debenture, and thus the higher the required rate of return on the debentures.
• D) if the debt were raised by issuing $50 million of debentures and $50 million of first mortgage bonds, we could be certain that the firm's total interest expense would be lower than if the debt were raised by issuing $100 million of first mortgage bonds.
• E) the higher the percentage of debt represented by mortgage bonds, the riskier both types of bonds will be and, consequently, the higher the firm's total dollar interest charges will be.

Identify and explain the four components of time series: trend, cyclical, seasonal, and random variations.

Apply appropriate methods for analyzing time series, including moving averages and exponential smoothing.

Determine the impact of selecting different values of the smoothing constant on the outcome of exponential smoothing.

Compute and interpret the seasonal indices and their relevance in time series analysis.

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Definitions:

Punishment by Removal

A behavioral modification technique involving the withdrawal of a desirable stimulus to decrease the likelihood of a behavior reoccurring.

Classical Conditioning

A method of acquiring behaviors through the regular association of two stimuli; the response at first triggered by the second stimulus is eventually triggered by the first stimulus by itself.

Time Consuming

Requiring a significant amount of time to complete, often more than is desired or anticipated.

Learning

Learning is a process through which experience or practice results in a relatively permanent change in behavior or potential behavior.