If DA kDL,then falling interest rates will cause the market value of equity to rise.

Question

If DA > kDL,then falling interest rates will cause the market value of equity to rise.

Quizplus · Accepted Answer

DA (debt-to-assets ratio) is a measure of a company's leverage, while kDL (weighted average cost of debt) is the cost of the company's outstanding debt. If DA > kDL, it means that the cost of the company's debt is lower than the rate of return on its assets. This is a good indicator of financial health, and falling interest rates would further lower the cost of debt, leading to increased profitability and hence, higher market value of equity.

If DA > KDL,then Falling Interest Rates Will Cause the Market