Direct bankruptcy costs, Direct bankruptcy costs. ART has

Direct bankruptcy costs

Assignment Help Financial Management

Reference no: EM131561054

1. Direct bankruptcy costs:

A. Serve as an incentive to increase the financial leverage of a firm.

B. Include both economic and legal costs.

C. Are a disincentive to debt financing

D. Include the costs incurred as a firm tries to avoid bankruptcy protection

E. Are usually very small compared to indirect bankruptcy costs.

2. ART has come out with a new and improved product. As a result, the firm projects an ROE of 29%, and it will maintain a plowback ratio of 0.25. Its earnings this year will be $3.0 per share. Investors expect a 13% rate of return on the stock. What price do you expect ART shares to sell for in 4 years?

$80.46

$54.77

$51.77

$48.27

Reference no: EM131561054

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