Learning Objective 7-7
1) The risk associated with debt is risk to ________.
A) the borrowing company
B) the issuing company’s creditors
C) financial analysts following a company
D) positive financial leverage
2) The primary risk associated with long-term debt is the risk of ________.
A) raising money from investors
B) raising money from creditors
C) not being able to make the debt payments
D) positive financial leverage
3) Which of following is NOT a step that should be taken to minimize risk associated with long-term debt? A company should ________.
A) conduct a thorough business analysis when a decision is made to borrow money
B) evaluate the characteristics of the various types of debt
C) make sure that there is a high probability of positive financial leverage
D) maximize its debt-to-equity ratio
4) The primary risk associated with long-term debt is the risk of not being able to make the debt payments.
5) Risks associated with debt affect both a company and its creditors.
6) Off-balance-sheet financing is always illegal.
7) Companies should always maximize its debt-to-equity ratio.
8) The higher the debt-to-equity ratio the greater the positive financial leverage.