What Three Factors Are Important to Consider in Determining a Target

question 50

Multiple Choice

What three factors are important to consider in determining a target debt to equity ratio?

• A) Taxes, asset types, and pecking order and financial slack.
• B) Asset types, uncertainty of operating income, and pecking order and financial slack.
• C) Taxes, financial slack and pecking order, and uncertainty of operating income.
• D) Taxes, asset types, and uncertainty of operating income.

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Definitions:

Bond Indenture

A legal contract between a bond issuer and a bondholder, detailing the terms of the bond such as the coupon rate, maturity date, and obligations of the issuer.

Call Provision

A clause in a bond or other fixed-income security that allows the issuer to repay the principal before the maturity date.

Sinking Fund

A savings fund into which an organization sets aside money over time, intended to pay off a debt or bond at its maturity or to meet a future capital expense.

Subordinated

A ranking of debt that places this type of debt lower than other debts in terms of claims on assets or earnings, typically in the context of bankruptcy or liquidation.