Exam 15: Capital Structure Concepts

The mix of debt, preferred stock, and common equity that minimizes the weighted cost of capital to the firm is known as the ____.

The objective of capital structure management is to find the capital mix that leads to ____.

Which of the following statements is true concerning the relationship between the firm's cost of equity and its capital structure (as measured by the debt ratio)?

The amount of permanent short-term debt, long-term debt, preferred stock, and common stock used to finance a firm defines the firm's ____.

The tax deductibility of interest payments provides the firm with a ____.

What is the present value of the tax shield to a firm that has total assets of $80 million and a net worth of $55 million, if the average interest rate on perpetual debt is 8.5%, the average return on equity is 14%, and the marginal tax rate is 35%?

What is the pecking order theory regarding managerial preferences for financing alternatives?

The process of simultaneously buying and selling the same or equivalent securities in different markets to take advantage of price differences and make a profit is called ____.

Investors' required returns and the cost of equity capital ____ as the relative amount of debt used to finance the firm ____.

How do signaling effects impact the firm's capital structure decision?

____ refers to the argument that officers and managers have access to information about the expected future earnings of the firm that is not available to outside investors.

The less a firm's business risk, the ____ the amount of ____ that will be used in the optimal capital structure, holding constant all other relevant factors.

The use of fixed-cost financing sources is referred to as the use of ____.

Agency costs _____.

Calculate the market value of Lotle Group, a firm with total assets of $80 million and $30 million of perpetual debt in its capital structure. The firm's cost of equity is 14%, and the cost of debt is 9%. Lotle expects annual, perpetual net operating income (EBIT) of $9 million and a marginal tax rate of 40%.

The optimal capital structure of a firm is a function of the ____.

In determining the capital structure for an international firm, the managerial objective is to minimize ____.

A firm accepts the risk of fixed-cost financing to ____.

The optimal capital structure is a function of ____.

Arbitrage transactions are ____.