ABC Ltd. has Debt Equity ratio of 3:1 whereas XYZ Ltd. has Debt Equity ratio of 1:1. Name theadvantage ABC Ltd. will have over XYZ Ltd. when the rate of interest is lower than the rate of return oninvestment of the company. (1)a) Trading on Equityb) Low riskc) Low cost of equityd) Greater Flexibili

ABC Corp. has a AAA credit rating while XYZ Corp. has an A credit rating. Can XYZ's WACC ever be lower than ABC'S?XYZ's WACC can be lower because its cost of debt is lower.XYZ's WACC can be lower because its cost of equity is lower.XYZ's WACC can be lower if you use market weights and not book weights.XYZ's WACC can be lower if you use book weights and not market weights.

The debt to equity ratio indicates:The net worth of the companyThe proportion of the company financed by lenders versus ownersA company's working capital funding gapThe liquidity of the company

Two firms ABC and XYZ have applied for 5 year term loans from your bank. You can fund only 1 proposal. Interest Coverage ratio and Debt service coverage ratio of ABC are 3 and 0.8 respectively. These ratios stand at 2.8 and 2 respectively for XYZ.  The banker will prefer None, because banker will seek more information about stock performance in the equity market to assess likely performnace over next 5 years XYZ, because it is better placed than ABC to meet ALL its repayment obligations for the current year ABC, because it has a higher interest coverage ratio

Select Any One Of the Following Options: If you were a banker evaluating proposals from ABC Ltd and XYZ Ltd to extend working capital loans, which of them would you prefer to lend to? The firms are in the same industry and are identical in all ways excepting the following: ABC (Current ratio ? 0.9; Acid Test Ratio - 0.4 ; Days payable - 15 days; Days receivable ? 120 days) ; XYZ (Current ratio ? 0.9; Acid Test Ratio - 0.7 ; Days payable - 30 days; Days receivable ? 80 days) ABC XYZ

XYZ Corp. has a return on common equity (ROCE) of 40%. It has a financial leverage of40% and an after-tax net borrowing cost of 5% on $250 million of net financial obligation.a) What rate of return does XYZ Corp. earn on its operations?(2 marks)b) The firm is considering repurchasing $125 million of its stock and financing therepurchase with further borrowing at a 5% after-tax borrowing cost. What effect willthis transaction have on the firm’s return on common equity if the same level ofoperating profitability is maintained