* Sole proprietorships and partnership are subject to less regulations, easy and less expensive, no corporate inc tax. * Corporation easy to raise capital, transfer of ownership,limited liability ,unlimited life. * The conflicts between bondholders and stockholders can be reduced with the use of restrictive bond covenants. * Stockholders are more likely to prefer riskier projects, because they receive more of the upside if the project succeeds. * By contrast, bondholders receiving fixed payments are more interested in limiting risk. * Bondholders are particularly concerned about the use of additional debt * Bondholders attempt to protect themselves by including covenants in bond agreements that
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* Company A and Company B have the same total assets, Return on Assets (ROA), and profit margin. However, Company A has higher debt ratio and interest expense than Company B. Which of the following statements is most correct? Company A has a higher ROE than Company B. * Double taxation refers to the fact that corporate income is subject to an income tax, and then stockholders are subject to a further personal tax on dividends received.
Ace Industries has $2.0 million in current assets and $0.75 million in current liabilities. Ace decides to raise funds as additional notes payable and use them to increase inventory. How much can Ace’s note payable increase without pushing its current ratio below 1.8? $0.8125 million.
A new firm is developing its business plan. It will require $600,000 of assets, and it projects $435,000 of sales and $350,000 of operating costs for the first year. The firm is quite sure of these numbers because of contracts with its customers and suppliers. It can borrow at a rate of 7.5%, but the bank requires it to have a TIE of at least 5.0, and if the TIE falls below this level the bank will call in the loan and the firm will go bankrupt. What is the maximum debt ratio the firm can use?37.8%
Last year, Candle Corp had $200,000 of assets, $300,000 of sales, $20,000 of net income, and a debt-to-total-assets ratio of 40%. The new CFO believes a new computer program will enable it to