Probability - Firm M is a mature firm in a mature industry
Need to know which answer is correct and why, and why the other answers are not correct. Please show work so I will understand the approach.
Firm M is a mature firm in a mature industry; its annual net income and net cash flow are both consistently high and very stable. The firm's growth prospects are quite limited; therefore, the firm's capital budget is small relative to its net income. Firm N is a relatively new firm in a new industry; its annual operating income fluctuates considerably, but the firm has substantial growth opportunities. Its capital budget is expected to be large relative to its net income for the foreseeable future. Which of the following statements is most correct?
a. Firm M probably has a lower debt ratio than Firm N.
b. Firm M probably has a higher dividend payout ratio than Firm N.
c. If the corporate tax rate increases, the debt ratio of both firms is likely to fall.
d. Statements a and b are correct.
e. Statements b and c are correct.
https://brainmass.com/business/capital-structure-and-firm-value/probability-firm-m-is-a-mature-firm-in-a-mature-industry-11509
Solution Preview
In this case: e) Statements b and c are correct .
<br>
<br>Reasons: Statement c is the most likely one since since when corporate tax rate increases , it has effect on the savings due to interest ...
Free BrainMass Quizzes
-
This tests some key elements of major motivation theories.
-
This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.
-
This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.
-
This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce
-
This quiz will help you better understand Situational Leadership and its theories.