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Fundamental of Corporate Finance: Questions (Author's name)

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Added on  2021-04-24

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Some of the risk faced by the company include macroeconomics conditions and the consumer’s preference for rising healthy foods To counter the several risks in the business and ensure maximum shareholder value, this company has evaluated three alternative debt-to-capital ratios. A ratio of 20.0% indicates that it is lower than its competitors, a ratio of 40.0% indicates that this is goes hand in hand with the level of competitors and does not create any financial risk while a ratio of 60.0% will lead to a

Fundamental of Corporate Finance: Questions (Author's name)

   Added on 2021-04-24

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Fundamental of Corporate Finance: Questions (Author’s name)(Institutional Affiliation)Date
Fundamental of Corporate Finance: Questions (Author's name)_1
(Insert surname) 2Fundamental of Corporate Finance: QuestionsQuestion 1 Caution and risk prevention are the main cultural and managerial philosophy of Hill Country Snack Foods. Hill country functions in a very a competitive environment which makes it accessible to its clients. In such a competitive Industry the prices also tend to be very competitive[ CITATION Tay16 \l 1033 ]. The main reason for the success of Hill Country is its provision of quality products, its locality geographically and efficient operations. Some of the risk faced by the company include macroeconomics conditions and the consumer’s preference for healthy foodsTo counter the several risks in the business and ensure maximum shareholder value, this company has evaluated three alternative debt-to-capital ratios. All these ratios offer a tax protection advantage and thus maximize the company’s value[ CITATION Mou16 \l 1033 ]. Therating of the bond is AAA/AA that indicates low original occurrence of risk. Increasing the levels of debt will result to huge financial costs. A ratio of 20.0% indicates that it is lower than its competitors, a ratio of 40.0% indicates that this is goes hand in hand with the level of competitors and does not create any financial risk while a ratio of 60.0% will lead to a high financial risk and reduces the rating of the bond to B, having a much higher risk[ CITATION Mou16 \l 1033 ]. When making comparisons of the return of equity, we will be able to estimate the value of the adjustments in the capital structure. It will be noticed that the return of equity will tend to rise up when the ratio goes up this shows that 40.0% ratio will increase the value in the company. The other ratio of 60.0% may not be appropriate as it presents higher risks and a decrease in the value of the company’s worth.
Fundamental of Corporate Finance: Questions (Author's name)_2
(Insert surname) 3Business risk is a risk that occurs on the firm’s assets when there is no usage of debt. Reduction on 20% and 10% on EBIT, decreases net income, lowering EBIT when it’s a 20% debt.
Fundamental of Corporate Finance: Questions (Author's name)_3

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