Series 79 practice questionmediumAdvanced Financial Analysis
Which capital structure change is most likely to improve a company’s interest coverage ratio, assuming all else is constant?
- AIssuing new preferred stock
- BDeclaring a special dividend
- CIncreasing short-term borrowings
- DPaying down existing debt✓ Correct answer
Explanation
Why D — Paying down existing debt
Paying down debt reduces interest expense, boosting the interest coverage ratio. Adding leverage or distributing cash would worsen or not affect this metric, potentially increasing financial risk.
Turn it into reps
Reading one answer is not the same as being ready
Lucky the Banker is a free practice app with 995+ Series 79 questions, weak-area tracking, and timed mock exams. No credit card, no paywall.
Spot an error in this question or explanation? Tell us — we fix these fast.
Related Collection, Analysis & Evaluation of Data questions
- When constructing a DCF model, which of the following items should generally be excluded from the calculation of…
- A company’s adjusted EBITDA excludes $3 million in restructuring charges. Why might an analyst remove this item for…
- A typical reason for higher valuation multiples in precedent transaction analysis compared to trading comparables is:
- A company is being evaluated in an LBO scenario. The forecast projects $80 million in EBITDA next year. If the…
- Which item is added when bridging from enterprise value to common equity value?
- When constructing a DCF sensitivity table, which variables are most commonly flexed to produce an implied valuation…
- In a DCF model using the mid-year convention, what is the primary effect on the present value of free cash flows?
- Which situation is most likely to warrant a detailed pro forma balance sheet adjustment during a merger analysis?