Cost of capital/ debt ratios/operation efficiency
Not what you're looking for?
A utility company is allowed to charge prices high enough to cover all costs, including its cost of capital. Public service commissions are supposed to take actions to stimulate companies to operate as efficiently as possible in order to keep costs, hence prices, as low as possible. Some time ago, AT&T's debt ratio was about 33 percent. Some people (Myron J. Gordon in particular) argued that a higher debt ratio would lower AT&T's cost of capital and permit it to charge lower rates for telephone service. Gordon thought an optimal debt ratio for AT&T was about 50 percent. Are these theories supported or refuted?
Purchase this Solution
Solution Summary
The solution clearly explains why the theories presented in the question are true or not. The solution goes into a great amount of detail about the cost of capital theories and concisely explains why the theories are not true. Overall, an excellent response to the question.
Solution Preview
These theories are not true. A company's cost of capital is dependent on its assets and not on its debt structure. If AT&T increases ...
Purchase this Solution
Free BrainMass Quizzes
Six Sigma for Process Improvement
A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.
Marketing Management Philosophies Quiz
A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.
Income Streams
In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.
Understanding Management
This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.
Transformational Leadership
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.