Transfer wealth from stockholders to debt-holders

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Reference no: EM132025542

1. "The reduction in debt ratio, regardless of the original level of debt, transfer wealth from stockholders to debt-holders, holding other factors constant." True or false? Select one: a. True b. False

2. "Companies pay interest expenses out of EBIT. If EBIT is not enough to pay interest expenses, the firm defaults, so the TIE ratio needs to be at least 0." True or false? Select one: a. True b. False

3. "Conflicts between two mutually exclusive projects occasionally occur, where the NPV method ranks one project higher but the IRR method ranks the other one. Such conflicts should be resolved in favor of the project with the higher IRR" True or false? Select one: a. True b. False

4. "In calculating the operating cash flow, depreciation is first deducted to calculate the taxes but is then added back because it is not a cash item." True or false? Select one: a. True b. False

5. "The firm should always choose the projects with highest IRRs to maximize value." True or false? Select one: a. True b. False

Reference no: EM132025542

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