When your firm's debt-to-equity ratio exceeds 4, the long term debt interest rate is 3%. True False
Question
When your firm's debt-to-equity ratio exceeds 4, the long term debt interest rate is 3%. True False
Solution
False. The debt-to-equity ratio of a firm does not directly determine the interest rate on long-term debt. The interest rate is typically determined by the creditworthiness of the firm, market conditions, and other factors. A high debt-to-equity ratio may indicate a higher risk to lenders, which could lead to higher interest rates, but there is not a set ratio that triggers a specific interest rate.
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