Which three factors are generally considered to be the most important when determining a target debt-equity ratio?
A)Taxes,asset types,and inflation rate
B)Asset types,current operating income,and inflation rates
C)Taxes,current operating income,and future operating income
D)Taxes,asset types,and uncertainty of operating income
E)Interest rates,inflation rates,and tax rates

Question

Quizplus · Accepted Answer

The most important factors when determining a target debt-equity ratio are taxes, asset types, and uncertainty of operating income. Taxes play a significant role in determining the cost of debt financing, and asset types affect the risk associated with the financing. The uncertainty of operating income is a major factor in determining the appropriate debt level, as the company needs to be able to cover its debt payments even in times of economic uncertainty. Current operating income and inflation rates are also important, but not as critical as the factors listed in option D. Interest rates and future operating income have a secondary importance in determining the target debt-equity ratio.

Which Three Factors Are Generally Considered to Be the Most