A company uses 30% common stock and 70% long-term debt to finance its operations. An increase in which one of the following will increase the capital structure weight of debt, all else equal?a. Number of bonds outstandingb. Market price of the common stockc. Book value of the outstanding shares of common stockd. Number of shares of stock outstanding

Question

03-06-2021
Business

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A company uses 30% common stock and 70% long-term debt to finance its operations. An increase in which one of the following will increase the capital structure weight of debt, all else equal?a. Number of bonds outstandingb. Market price of the common stockc. Book value of the outstanding shares of common stockd. Number of shares of stock outstanding

Sagot :

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andromache andromache · Answer 1 · 2021-06-04T20:44:06-04:00

Answer:

a. Number of bonds outstanding

Explanation:

In the case when the firm wants to issue the new bonds but keeping the equity portion constant so the debt weight should increased from 70% to the higher weightage

So as per the given situation, the option a is correct as it also increased the number of outsanding bonds

Therefore the same is to be considered

Hence, the other options seems wrong

Sagot :

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