0
If All else is constant an increase in a firm's cost of debt will do what?
Wiki User
∙ 11y ago
will result in an increase in the firm's cost of capital.
Wiki User
∙ 11y ago
Add your answer:
Earn +20 pts
Why does the weighted average cost of capital of firms that uses more debt capital lower that that of a firm that uses less debt capital?
Because the cost of debt is generally lower than the cost of equity. This is because in case of financial distress, debt-holders are repaid before the equity holders are, as well as because debt has the assets of the firm as collateral and equity does not.
What is after cost of debt?
The after-tax cost of debt is predominantly based on marginal pretax costs, as well as marginal or statutory tax rates.
What is a monetary cost?
Monetary cost is the cost associated with borrowing money from open market that is called interest on debt as well. Example: If company take loan from bank of 1000 on 10% then 10% of 10000, 1000 is the monetary cost or cost of debt
What is the ebit-eps indifference point?
The EBIT-EPS indifference point is a calculation used in determining optimal capital structures. What that means is firms typically finance their operations with two primary means, equity and debt. Back to the indifference point, algebraically and graphically when the earnings per share for debt and equity financing alternatives are equal, you have the EBIT-EPS indifference point. Put another way a firm can finance their operations at the same cost, with either debt or equity, at the indifference point. EPS (debt financing) = EPS (equity financing)
What is the ebit eps indifference point?
The EBIT-EPS indifference point is a calculation used in determining optimal capital structures. What that means is firms typically finance their operations with two primary means, equity and debt. Back to the indifference point, algebraically and graphically when the earnings per share for debt and equity financing alternatives are equal, you have the EBIT-EPS indifference point. Put another way a firm can finance their operations at the same cost, with either debt or equity, at the indifference point. EPS (debt financing) = EPS (equity financing)
Why does the weighted average cost of capital of firms that uses more debt capital lower that that of a firm that uses less debt capital?
Because the cost of debt is generally lower than the cost of equity. This is because in case of financial distress, debt-holders are repaid before the equity holders are, as well as because debt has the assets of the firm as collateral and equity does not.
Would the cost of debt increase if the risk-free rate increases?
yes
Are debt collectors ever law firms?
Yes, many are law firms.
Why would the cost of debt increase if the risk-free rate increase?
The rate of return on a security, in this case the debt, is defined by rd = rRF + Liquidity Premium + Maturity Risk Premium + Default Risk Premium Thus increasing the risk free rate (rRf) should increase the cost of debt. Hopefully that answers your question...
Why would the cost of debt increase if the risk free rate increase?
The rate of return on a security, in this case the debt, is defined by rd = rRF + Liquidity Premium + Maturity Risk Premium + Default Risk Premium Thus increasing the risk free rate (rRf) should increase the cost of debt. Hopefully that answers your question...
Where can one get a business debt consolidation?
Business debt consolidations can be found in several places. The primary place they are found are in business debt consolidation firms as well as business management firms.
The debt ratio is a measure of a firms what?
Leverage
Is it better to use book value versus market values of debt and equity rather than book values to calculate a firms Weighted Average Cost of Capital?
HIII. I am taking accounting and in my opinion market values of debt is way better to calculate a firms weight average cost of capital... hope i helped even just a little
What are the main elements in calculating cost of capital How would an increase in debt affect the cost of capital How would you identify the optimal cost of capital for an organization?
Capital is calculated by subtracting the business costs from the profits gained from products and services. An increase in debt would decrease the total capital by increasing business costs. The optimal cost of an organization is low debt and high credits.
What do firms owe their creditors?
Firms will owe their creditors a debt and usually some type of interest.
Which ratio measures the firms degree of indebtness?
debt ratio
The optimal capital structure is that structure which?
Under different theory, things differ a lot. Perhaps there's no optimal capital structure in pecking-order theory but in reality most companies set a target debt-to-equity (D/E) ratio. Anyway, let's focus on trade-off theory first. Trade-off theory argues that there's an optimal amount of debt of each firm. At this level of debt, firms can take the most advantage of debts. Debts can be tax shield so that they can save money for firms to reinvest in other projects so as to earn more profits. However, debts can be quite dangerous because highly leveraged firms may face bankruptcy and financial distress costs (no matter they're direct or indirect) may increase the cost of debt of the company. Therefore, there must be a level of debt that make the benefits of debt and potential danger of debt offset each other. In another word, the marginal revenue of debt equals the marginal cost of debt. But remember, the real cases are not as easy as we put here. You can learn more on your corporate finance class and good luck to you!
