PRINCIPLES 100 UNIT 3 — PRACTICE MILESTONE 3 (Sopia university)

What is a company's ratio of its debt to its equity known as? RATIONALE This is how leverage is defined. Report an issue with this question One reason a company may choose to issue additional equity instead of debt when raising capital is that __________. ●  ● ● Weighted average cost of capital # Leverage ● Net present value ● Valuation ● they want more leverage UNIT 3 — PRACTICE MILESTONE 3 " Download Practice Milestone PDF SCORE 16/19 CONCEPT → Capital Structure Considerations 3 CONCEPT → Risk 4 RATIONALE If they were issued more debt, the company leverage would have increased. Report an issue with this question The risk that the cost of your investment will rise over time is known as __________. RATIONALE This is the definition of interest rate risk. Report an issue with this question  ●   ● ● debt impacts a company's cost of capital, but equity does not ● debt does not have the same tax benefits that equity does # they don't want to over-leverage themselves for fear of defaulting ● credit risk ● model risk ● interest rate risk # market risk CONCEPT → Valuing Different Costs 5 Using the following variables, calculate an organization's cost of debt on a $200,000 bond. R : 1.5% credit-risk rate: 3% t: 30% RATIONALE Use this calculation: Multiply $200,000 by this percentage: Report an issue with this question How do systematic risk and unsystematic risk differ? f  ● # $6,300 ● $9,000 ● $8,730 ● $2,700 ● Unsystematic risk commands a risk premium, whereas systematic risk does not. ● Passive fund management is better for systematic risk, whereas active fund management is better for unsystematic risk.