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

Taxes are important to consider because interest payments on debt are tax-deductible, while dividends on equity are not. The type of assets a company has also affects the appropriate debt to equity ratio, as some industries are inherently riskier and require less leverage. Finally, the uncertainty of operating income is important because higher volatility can increase the risk of financial distress and bankruptcy, making a lower debt to equity ratio preferable.

What Three Factors Are Important to Consider in Determining a Target