Which of the Following Is True

question 62

Multiple Choice

Which of the following is true?

• A)A firm with low anticipated profit will likely take on a high level of debt.
• B)A successful firm will probably take on zero debt.
• C)Rational firms raise debt levels when profits are expected to decline.
• D)Rational investors are likely to infer a higher firm value from a zero debt level.
• E)Investors will generally view an increase in debt as a positive sign for the firm's value.

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Definitions:

Bonds

Fixed-income securities that represent a loan made by an investor to a borrower, typically corporate or governmental, entitling the holder to interest payments and the return of principal at maturity.

Par Value

The nominal value of a bond or stock as declared by the issuer, which might not correspond with its actual market price.

Profit Margin

A financial metric expressing the percentage of revenue that exceeds the costs of goods sold, indicating the profitability of a company's sales.

Total Asset Turnover

A financial ratio that measures the efficiency of a company's use of its assets in generating sales revenue; it is calculated by dividing sales revenue by total assets.