FIN 302- Capital Structure Practice Questions

FIN 302- Capital Structure Practice Questions - Capital...

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Capital Structure Practice Questions What do you think? Will the following firm characteristics result in the use of more or less debt? Greater need to make investments to stay competitive *Use less debt – avoid underinvestment problem to fund future investments More tangible assets (vs. reputation capital and human assets) *Greater asset value upon liquidation makes debt cheaper for the firm – so use more debt if the firm has more tangible assets. (Debt cheaper) Low unemployment rate in your industry *Less: need to retain current employees (Due to low unemployment rate it will be harder to hire new people, because most people are already employed– more debt, they would be more likely to leave). Talking about cost of lost employees who quit, if everyone is a already fulfilled employee, it will be hard for you to find replacements. Because of customer quality concerns, your automotive firm has decided to offer 5-year, 100,000 mile warranties in place of 2 year, 24,000 mile warranties
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FIN 302- Capital Structure Practice Questions - Capital...

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