A firm had the following values for the four debt ratios discussed in the chapter: Liabilities to
Question:
a. Indicate whether each of the following independent transactions increases, decreases, or has no effect on each of the four debt ratios:
(1) The firm issued long-term debt for cash.
(2) The firm issued short-term debt and used the cash proceeds to redeem long-term debt (treat as a unified transaction).
(3) The firm redeemed short-term debt with cash.
(4) The firm issued long-term debt and used the cash proceeds to repurchase shares of its common stock (treat as a unified transaction).
b. The text states that analyst need not compute all four debt ratios each year because the debt ratios are highly correlated. Does your analysis in part a support this statement? Explain.
Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...
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Effect of Transactions on Debt Ratios a The effect of the four transactions on the four debt ratios ...View the full answer
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Related Book For 
Financial Reporting Financial Statement Analysis and Valuation
ISBN: 978-0324302950
6th edition
Authors: Clyde P. Stickney
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