Question

which of the following is true? A. A firm with low anticipated profit will likely take on a high level of debt. B. A successful firm will probably take on zero debt. C. Rational firms raise debt levels when profits are expected to decline. D. Rational investors are likely to infer a higher firm value from a zero debt level. E. Investors will generally view an increase in debt as a positive sign for the firm's value.

Answer 1

Answer: Investors will generally view an increase in debt as a positive sign for the firm's value.(E)

Explanation:

Investors will generally view an increase or rise in debt as a positive sign of the value of the firm. Rational investors are likely to invest in a higher firm value provided the firm is all-equity financed.

High-growth firms that has future positive net present value projects most times tend to have high levels of debt.