When your firm's debt-to-equity ratio exceeds 4, the long term debt interest rate is 3%. True False

This statement is False.

Explanation:

The debt-to-equity ratio indicates the proportion of debt a company uses to finance its assets relative to shareholders' equity. A ratio exceeding 4 means that for every dollar of equity, the company has four dollars of debt, indicating a high level of leverage.

However, the debt-to-equity ratio does not directly determine interest rates. Interest rates for long-term debt are influenced by multiple factors, including:

1. Market conditions: Current economic climate and interest rate trends.
2. Creditworthiness: The firm's credit rating or perceived risk.
3. Type of debt: Different types of loans can have different interest rates.
4. Duration of the debt: Longer-term debts might have different rates than short-term ones.

While a firm with a high debt-to-equity ratio may be seen as higher risk, which might lead to higher interest rates, it does not automatically mean that the long-term debt interest rate is 3%. Thus, the relationship cited in the statement is not necessarily true, making the claim false.