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You are trying to decide whether the debt structure that

Question: You are trying to decide whether the debt structure that Bethlehem Steel has currently is appropriate, given its assets. You regress changes in firm value against changes in interest rates, and arrive at the following equation -

Change in Firm Value = 0.20% - 6.33 (Change in Interest Rates)

a. If Bethlehem Steel has primarily short term debt outstanding, with a maturity of 1 year, would you deem it appropriate?

b. Why might Bethlehem Steel be inclined to use short term debt to finance longer term assets?

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