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Finance questions, help!!?


Default risk is the risk of a company not being able to pay back its debt.

a)Default risk [IS/ISNT?] recognised in Earnings Before Interest and Tax (EBIT)-Earnings Per Share (EPS) analysis.

b)Default risk is an important consideration in EBIT/EPS analysis because it means that:

a) having high levels of debt will generate an overinflated EPS figure
b) maintaining low levels of debt is often impossible
c) issuing shares will always be preferable to issuing debt
d) issuing more debt to maximise EPS will not always be beneficial

2. Select all assumptions below that are assumptions of the Modigliani and Miller (MM) propositions.

a) project and investment decisions are independent of capital structure
b) there are no financial distress or agency costs for companies in difficulty
c) trading of company shares occurs in a perfect market
companies and investors can borrow funds at the same interest rate
d) there are no company or personal taxes

1b
2a and c

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