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What best explains why a firm's ratio of long-term debt/total capital is lower than the industry average, while the ratio of income before interest and taxes/debt interest charges is higher than the industry average? A
What best explains why a firm's ratio of long-term debt/total capital is lower than the industry average, while the ratio of income before interest and taxes/debt interest charges is higher than the industry average?
| A. |
The firm has a high ratio of current assets/current liabilities. |
|
| B. |
The firm pays lower interest on long-term debt than the average firm. |
|
| C. |
None of the options are correct. |
|
| D. |
The firm has more short-term debt than average. |
|
| E. |
The firm has a high ratio of total cash flow/long term debt. |
Expert Solution
Ans.
If the firm's ratio of long-term debt/total capital is lower than the industry average, while the ratio of income before interest and taxes/debt interest charges is higher than the industry average , this is because the firm has more short-term debt than average.
so the correct option is D.
|
The firm has more short-term debt than average. |
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