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Is long term debt asset or liabilities?
A long-term investment is considered a long-term asset, because a firm expects a probable future economic benefit to result from it.
How compute cost of debt for WACC of a 5y project for company that has NO access to long-term debt markets?
1. If company has no access to long term debt as a source of capital then weighted average cost of capital will only include the rate of equity as a WACC for discounting long term projects as firm has not a mix of debt and equity to finance its investment projects
Which category of ratios is useful in assessing the capital structure and long term solvency of a firm?
The category of ratios useful for assessing a firm's capital structure and long-term solvency is known as leverage ratios. These ratios, such as the debt-to-equity ratio and interest coverage ratio, help analyze the extent to which a company is financed by debt versus equity and its ability to meet long-term obligations. By evaluating these ratios, stakeholders can gauge the financial risk and overall stability of the firm.
A firm has a long-term debt-equity ratio of .4 Shareholders equity 1 million. Current assets 200000 and current ratio is 2.0. The only current liabilities are notes payable. Total debt ratio is?
not provided, as the information given does not include the total debt amount.
What us the differences between debt and equity capital?
Equity capital is the form of finance which is provided by owners of the business while debt financing is form of long term loan which requires to pay interest. Debt financing has the benefit that interest paid for that is tax deductable while equity capital don't have to pay any interest and that's why it is not a tax deductable so for this type of benefit of debt finance companies tries to maintain proper mix of debt as well as equity capital in the business.
A conservatively financed firm would?
A conservatively financed firm typically maintains a lower level of debt relative to equity, prioritizing financial stability and risk management. This approach helps the firm minimize its financial risk and maintain steady cash flow, which can be particularly advantageous during economic downturns. By relying more on equity financing, the firm may also avoid the pressures of debt repayments, allowing for greater flexibility in operations and investment opportunities. Overall, such a firm aims for long-term sustainability over aggressive growth strategies.
Solve for debt equity ratio with debt ratio of 43?
For a company, the debt ratio indicates the relationship between capital supplied by outsiders and capital supplied by shareholders. Often the debt ratio is computed as total debt (both current and long-term) divided by total assets. Thus if a company has $50,000 in debt and assets of $100,000, its debt ratio is 50%. The debt ratio is also calculated as total debt/shareholders' equity, long-term debt/shareholders' equity, and in other ways. However computed, the debt ratio provides insight into the firm's capital structure and will vary across industries. A low debt ratio isn't necessarily best: If a company can earn a greater return on debt than its cost, the firm should borrow more and raise its debt ratio -- provided the debt burden won't be crushing when business slows. Turning to consumers, the debt ratio is often shorthand for the "debt to income" ratio, i.e., an individual's monthly minimum debt payments divided by monthly gross income. The debt ratio is monitored by credit card companies and determines the consumer's ability to obtain additional credit
How can lawyers collect payments?
Law firms that operate as debt collectors are generally still required to registered within the State they will be operating. However, this does not include collections of their own debts, or settlement attempts during pre and post litigation; so as long as they do not engage in debt collections practices. If acting as a law firm with the sole purpose and retention being to file suit they do not need to registered as a debt collection, but must be a licensed law firm.
How would the overuse of financial leverage be detrimental to a firm?
Overuse of financial leverage can significantly increase a firm's risk, as it amplifies both potential returns and losses. High levels of debt can lead to financial distress, making it difficult for the firm to meet its obligations during downturns or periods of reduced cash flow. Additionally, excessive leverage may limit a firm's flexibility to invest in growth opportunities, as more resources are tied up in servicing debt. Ultimately, this can undermine long-term stability and investor confidence.
What does capital structure mean?
Capital structure refers to the ways on how a firm finances its overall operations and growth. It includes long-term debt, common and preferred stocks as well as retained earnings.
The cost of capital should reflect the average cost of the various sources of long-term funds a firm uses to acquire assets?
Yes, the cost of capital is a weighted average of the various sources of long-term funds a firm uses, such as equity and debt. By considering the different costs and proportions of each source, the cost of capital provides a comprehensive measure of the overall cost of financing for the firm's assets.
How do you find the weighted average cost of capital at various combinations?
Weighted Average Cost Of Capital - WACC A calculation of a firm's cost of capital in which each category of capital is proportionately weighted. All capital sources - common stock, preferred stock, bonds and any other long-term debt - are included in a WACC calculation. WACC is calculated by multiplying the cost of each capital component by its proportional weight and then summing: Where Re = cost of equity Rd = cost of debt E = market value of the firm's equity D = market value of the firm's debt V = E + D E/V = percentage of financing that is equity D/V = percentage of financing that is debt Tc = corporate tax rate Weighted Average Cost Of Capital - WACC A calculation of a firm's cost of capital in which each category of capital is proportionately weighted. All capital sources - common stock, preferred stock, bonds and any other long-term debt - are included in a WACC calculation. WACC is calculated by multiplying the cost of each capital component by its proportional weight and then summing: WACC= E/V * Re + D/V* Rd*(1-Tc) Where: Re = cost of equity Rd = cost of debt E = market value of the firm's equity D = market value of the firm's debt V = E + D E/V = percentage of financing that is equity D/V = percentage of financing that is debt Tc = corporate tax rate
