Chapter 16, Problem 11MC

1. Calculate the market value of debt and the cost of debt for the company.

What are the sign that a company debt is high?

Can the yield on company traded bonds can be used as an estimate for some, or all, of the company’s debt. If not, can credit spreads be obtained from a financial data provider that can be used to estimate the cost of debt?

To what extent a company uses debt financing (or financial leverage) in business operations?

What do the Debt management ratios reveal?

What actions do companies typically take to meet the large debt burdens resultingfrom LBOs?

How can we summarize the firm's ability to meet debt repayment obligations?

Which of the following is the risk due to a firm's debt usage?      Business risk     Financial risk     Market risk     Interest rate risk     Purchasing power risk     Exchange rate risk

Are the companies financed primarily with debt or equity? Why?