What three factors are important to consider in determining a target debt to equity ratio?
A)Taxes, asset types, and pecking order and financial slack
B)Asset types, uncertainty of operating income, and pecking order and financial slack
C)Taxes, financial slack and pecking order, and uncertainty of operating income
D)Taxes, asset types, and uncertainty of operating income
E)None of the above.

Question

Quizplus · Accepted Answer

The factors that are important to consider in determining a target debt to equity ratio are taxes, asset types, and uncertainty of operating income. Taxes play an important role in determining the cost of debt financing, while asset types determine the collateral value of the assets. Uncertainty of operating income helps determine the amount of financial risk a company can handle. Financial slack and pecking order are not as important factors as compared to these three. Therefore, option D is the best choice.

What Three Factors Are Important to Consider in Determining a Target