Stadford, Inc. has a debt-to-equity ratio of 2/3. 1. The debt-to-equity indirectly describes the firm's: a....

Stadford, Inc. has a debt-to-equity ratio of 2/3.

1. The debt-to-equity indirectly describes the firm's: a. capital structure b. capital budget c. asset allocation d. working capital e. risk structure

2. The proportion of Stadford that is equity (the equity ratio) is: a. 60% b. 40% c. 67% d. 150% e. 100%

3. Which of the following statements are correct: I. Stadford is a levered firm II. Stadford’s degree of financial leverage is greater than 1.0 III. Stadford doesn’t pay taxes

Expert Solution

1)

Capital structure

Debt-to-equity ratio shows how much of assets are financed by debt and equity.

2)

2/3 = 0.6667

Proportion of equity = 1 / (1 + DE)

Proportion of equity = 1 / (1 + 0.6667)

Proportion of equity = 0.6 or 60%

3)

Stadford is a levered firm

A firm having debt will be termed as a levered firn.

jeff jeffy answered 2 years ago

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