Owners of long-term debt instruments such as bonds would prefer
1) a debt ratio of 50% to a debt ratio of 30%
2) a debt ratio of 30% to a debt ratio of 50%
3) a times interest earned of 3.0 to a times-interest-earned ratio of 5.0
4) a times interest earned of 5.0 to a times-interest-earned ratio of 5.0
A)1 and 3
B)1 and 4
C)2 and 3
D)2 and 4

Question

​Owners of long-term debt instruments such as bonds would prefer
1) a debt ratio of 50% to a debt ratio of 30%
2) a debt ratio of 30% to a debt ratio of 50%
3) a times interest earned of 3.0 to a times-interest-earned ratio of 5.0
4) a times interest earned of 5.0 to a times-interest-earned ratio of 5.0​
A)​1 and 3
B)​1 and 4
C)​2 and 3
D)​2 and 4

Quizplus · Accepted Answer

Owners of long-term debt instruments such as bonds would prefer a lower debt ratio because it indicates a lower level of debt relative to the company's assets, suggesting a stronger financial position and lower risk of default. Therefore, a debt ratio of 30% is preferred over 50%. Additionally, a higher times interest earned ratio indicates a company is more capable of meeting its interest obligations from its earnings, making a ratio of 5.0 preferable to 3.0.

​Owners of Long-Term Debt Instruments Such as Bonds Would Prefer

Owners of Long-Term Debt Instruments Such as Bonds Would Prefer