MGMT 20000 Study Guide - Quiz Guide: Debenture, Capital Structure, Interest Expense

• School: Purdue University
• Department: Management
• Course: MGMT 20000
• Professor: Frank Kane

Document Summary

Liquidity is the ability to earn a satisfactory net income: true, false. Banks will charge a very profitable company a higher interest rate as compared to a company with minimal income since the high income business will be better able to pay the extra interest cost: true, false. Interest expense incurred when borrowing money, as well as dividends paid to stockholders, are both tax deductible: the mixture of liabilities and stockholders" equity a business uses is called its capital structure. The higher the debt to equity ratio, the greater the financial risk the company is taking: true, false. The mixture of debt and equity securities is generally the same for most companies: true, false. A debt to equity ratio of 0. 5 means that half of the company"s assets are financed by creditors: true, false. Term bonds require payments in installments over a series of years: true, false.