Debt Holders Can Be Thought of as Owning the Firm

question 65

Multiple Choice

Debt holders can be thought of as owning the firm but having ________ a call option on the assets of the firm with a strike price equal to ________.

• A) written, face value of debt
• B) bought, face value of debt
• C) written, value of equity
• D) bought, value of equity

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Definitions:

Statement Of Cash Flows

A financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, breaking the analysis down into operating, investing, and financing activities.

Times-Interest-Earned Ratio

A metric used to evaluate a company's ability to meet its interest obligations, calculated as earnings before interest and taxes (EBIT) divided by interest expense.

EBIT

Earnings Before Interest and Taxes, a metric used to assess a company's financial performance, focusing purely on operational and production efficiency.

Net Profit

The amount of profit left over after all expenses and taxes have been subtracted from total revenue.