T or F: Short-term debt should be included in the capital structure if it is a p
ID: 2732442 • Letter: T
Question
T or F: Short-term debt should be included in the capital structure if it is a permanent source of financing in the sense that the company plans to continually repay and refinance the short-term debt
T or F: Although EBIT is generally considered to be independent of financial leverage, it might be influenced by financial leverage at high debt levels.
T or F: For a project with a normal cash flow patter, other things held constant, an increase in the project’s cost of capital will result in a decrease in the project’s NPV
T or F: For a project with a normal cash flow pattern, the NPV, IRR and MIRR always reach the same accept-reject conclusion
Explanation / Answer
Answer - 1
The debt which is a permanent source of financing should be the part of the company’s capital structure to find the actual cost of financing. If a company uses short-term debt, which it continually repay and refinance it should be considered as the permanent debt capital. This is because it will remain in the balance sheet for years.
Thus, the given statement is true.
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