Question 1

All of the following statements are correct except:

Accepted Answer

A) Venture capitalists usually are members of partnerships that consist of thousands of general partners. 
B) The typical venture capital partnership manages between $50 billion and $100 billion in assets. 
C) It is common to organize a venture capital fund as a publicly listed corporation. 
D) At the end of a fund's life,cash and securities are typically donated to charitable causes. 
E) None of the above statements are correct. 
A) Venture capitalists usually are members of partnerships that consist of thousands of general partners. 
B) The typical venture capital partnership manages between $50 billion and $100 billion in assets. 
C) It is common to organize a venture capital fund as a publicly listed corporation. 
D) At the end of a fund's life,cash and securities are typically donated to charitable causes. 
E) None of the above statements are correct.

Question 2

All of the following statements are correct except:

Accepted Answer

A) A firm's business risk is measured by its variability in EPS over time and is affected by several factors,including the business cycle,competitive pressures,and the firm's operating leverage or its level of fixed operating costs. 
B) The degree of financial leverage measures the sensitivity of earnings per share to changes in interest expense. 
C) The degree of combined leverage is the percentage change in gross profit that results from a 1 percent change in sales volume. 
D) The degree of combined leverage is simply the product of its degree of operating leverage and its retention rate. 
E) None of the above statements are correct. 
A) A firm's business risk is measured by its variability in EPS over time and is affected by several factors,including the business cycle,competitive pressures,and the firm's operating leverage or its level of fixed operating costs. 
B) The degree of financial leverage measures the sensitivity of earnings per share to changes in interest expense. 
C) The degree of combined leverage is the percentage change in gross profit that results from a 1 percent change in sales volume. 
D) The degree of combined leverage is simply the product of its degree of operating leverage and its retention rate. 
E) None of the above statements are correct.

Question 3

A greater percentage of European multinational firms use weighted average costs of capital as their project discount rates than U.S.firms.

Accepted Answer

A) True 
 B)False

Question 4

If a firm pays out 30% of its earnings as dividends and has averaged a 20 percent return on assets,how quickly can the firm grow without needing to secure outside funding sources?

Accepted Answer

A) 6.4%. 
B) 10.2%. 
C) 16.3%. 
D) 20.0%. 
E) none of the above. 
A) 6.4%. 
B) 10.2%. 
C) 16.3%. 
D) 20.0%. 
E) none of the above.

Question 5

The degree of financial leverage measures the sensitivity of __________ to changes in __________.

Accepted Answer

A) net sales,EBIT 
B) EBIT,net sales 
C) EBIT,EPS 
D) EPS,EBIT 
A) net sales,EBIT 
B) EBIT,net sales 
C) EBIT,EPS 
D) EPS,EBIT

Question 6

If a firm has current earnings before interest and taxes of $100,000 and interest expense of $10,000,its degree of financial leverage would be:

Accepted Answer

A) 10 
B) 1.11 
C) .10 
D) cannot tell from this information 
A) 10 
B) 1.11 
C) .10 
D) cannot tell from this information

Question 7

All of the following statements are correct except:

Accepted Answer

A) The pecking order hypothesis is a theory that states managers prefer to use additions to retained earnings to finance the firm,then debt,and (as a final resort)new equity. 
B) The market timing hypothesis states that firms try to time the equity market by issuing stock when their stock prices are high and repurchasing shares when stock values are low. 
C) The static tradeoff hypothesis states that firms will balance the advantages of debt (its lower cost and tax-deductibility of interest)with its disadvantages (greater possibility of bankruptcy and the value of explicit and implicit bankruptcy costs). 
D) Agency costs reduce the optimal level of debt financing for a firm below the level that would be appropriate if agency costs were zero. 
E) All of the above statements are correct. 
A) The pecking order hypothesis is a theory that states managers prefer to use additions to retained earnings to finance the firm,then debt,and (as a final resort)new equity. 
B) The market timing hypothesis states that firms try to time the equity market by issuing stock when their stock prices are high and repurchasing shares when stock values are low. 
C) The static tradeoff hypothesis states that firms will balance the advantages of debt (its lower cost and tax-deductibility of interest)with its disadvantages (greater possibility of bankruptcy and the value of explicit and implicit bankruptcy costs). 
D) Agency costs reduce the optimal level of debt financing for a firm below the level that would be appropriate if agency costs were zero. 
E) All of the above statements are correct.

Question 8

The ratio of debt to stock market equity has generally been highest for the smallest of U.S.firms.

Accepted Answer

A) True 
 B)False

Question 9

All of the following statements are correct except:

Accepted Answer

A) The tax deductibility of debt becomes less important to firms with large nondebt tax shields such as foreign tax credits granted by the U.S.government to firms that pay taxes to foreign governments. 
B) As the debt/total asset ratio rises,or as earnings become more volatile,the firm will face higher borrowing costs,driven upward by bond investors requiring higher yields to compensate for additional risk. 
C) The static tradeoff hypothesis states that firms will balance the advantages of debt (its lower cost and tax-deductibility of interest)with its disadvantages (greater possibility of bankruptcy and the value of explicit and implicit bankruptcy costs). 
D) Agency costs reduce the optimal level of debt financing for a firm below the level that would be appropriate if agency costs were zero. 
E) All of the above statements are correct. 
A) The tax deductibility of debt becomes less important to firms with large nondebt tax shields such as foreign tax credits granted by the U.S.government to firms that pay taxes to foreign governments. 
B) As the debt/total asset ratio rises,or as earnings become more volatile,the firm will face higher borrowing costs,driven upward by bond investors requiring higher yields to compensate for additional risk. 
C) The static tradeoff hypothesis states that firms will balance the advantages of debt (its lower cost and tax-deductibility of interest)with its disadvantages (greater possibility of bankruptcy and the value of explicit and implicit bankruptcy costs). 
D) Agency costs reduce the optimal level of debt financing for a firm below the level that would be appropriate if agency costs were zero. 
E) All of the above statements are correct.

Question 10

All of the following methods can be used to estimate the cost of debt except:

Accepted Answer

A) If the firm targets an "A" rating (or any other bond rating),a review of the yields to maturity on A-rated bonds in Standard & Poor's Bond Guide can provide an estimate of the firm's current borrowing costs. 
B) The firm can solicit the advice of investment bankers on the cost of issuing new debt. 
C) If the firm has debt currently trading,it can use public market prices and yields to estimate its current cost of debt. 
D) A firm can seek long-term debt financing from a bank or a consortium of banks;preliminary discussions with the bankers will indicate a ballpark interest rate the firm can expect to pay on its borrowing. 
E) All of the above statements are correct. 
A) If the firm targets an "A" rating (or any other bond rating),a review of the yields to maturity on A-rated bonds in Standard & Poor's Bond Guide can provide an estimate of the firm's current borrowing costs. 
B) The firm can solicit the advice of investment bankers on the cost of issuing new debt. 
C) If the firm has debt currently trading,it can use public market prices and yields to estimate its current cost of debt. 
D) A firm can seek long-term debt financing from a bank or a consortium of banks;preliminary discussions with the bankers will indicate a ballpark interest rate the firm can expect to pay on its borrowing. 
E) All of the above statements are correct.

Question 11

Flotation costs include:

Accepted Answer

A) cost of printing shares 
B) legal and accounting costs 
C) investment banker fees 
D) all the above 
A) cost of printing shares 
B) legal and accounting costs 
C) investment banker fees 
D) all the above

Question 12

The sustainable growth rate measures how quickly a firm can increase its asset base over the next year without raising outside funds.

Accepted Answer

A) True 
 B)False

Question 13

All of the following statements are correct except:

Accepted Answer

A) EBIT/EPS analysis allows managers to see how the same capital structures affect the earnings and risk levels of their firms. 
B) EBIT/EPS analysis shows the graphical relationship between a firm's operating earnings,or earnings before interest and taxes (EBIT),and earnings per share (EPS). 
C) EBIT/EPS analysis suggests that at some EBIT level,a firm will be indifferent between the two capital structures,inasmuch as they result in the same earnings per share. 
D) EBIT/eps analysis shows the ranges of EBIT where a firm may prefer one capital structure over another so that the firm may decide to increase or decrease its financial leverage depending on whether its expected EBIT is above or below the indifference EBIT level. 
E) All of the above statements are correct. 
A) EBIT/EPS analysis allows managers to see how the same capital structures affect the earnings and risk levels of their firms. 
B) EBIT/EPS analysis shows the graphical relationship between a firm's operating earnings,or earnings before interest and taxes (EBIT),and earnings per share (EPS). 
C) EBIT/EPS analysis suggests that at some EBIT level,a firm will be indifferent between the two capital structures,inasmuch as they result in the same earnings per share. 
D) EBIT/eps analysis shows the ranges of EBIT where a firm may prefer one capital structure over another so that the firm may decide to increase or decrease its financial leverage depending on whether its expected EBIT is above or below the indifference EBIT level. 
E) All of the above statements are correct.

Question 14

Corporate debt as a percentage of GDP grew from around ______ in 1970 to nearly ______ in 2007.

Accepted Answer

A) 35%;50% 
B) 40%;55% 
C) 45%;60% 
D) 50%;60% 
A) 35%;50% 
B) 40%;55% 
C) 45%;60% 
D) 50%;60%

Question 15

A firm with a DOL of 2,and no preferred stock,and no long-term debt will have a DCL of:

Accepted Answer

A) 0 
B) 2 
C) 1 
D) cannot tell from this information 
A) 0 
B) 2 
C) 1 
D) cannot tell from this information

Question 16

A firm's degree of combined leverage can be measured as degree of operating leverage __________ the degree of financial leverage:

Accepted Answer

A) plus 
B) minus 
C) times 
D) divided by 
A) plus 
B) minus 
C) times 
D) divided by

Question 17

Which of the following is a different concept from the other three?

Accepted Answer

A) required rate of return 
B) cost of capital 
C) discount rate 
D) net profit margin 
A) required rate of return 
B) cost of capital 
C) discount rate 
D) net profit margin

Question 18

Operating leverage affects the top portion of a firm's income statement whereas financial leverage affects the bottom half of the income statement.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following phrases make the statement false? As a firm increases its operating leverage for a given quantity of output,this:

Accepted Answer

A) decreases its financial leverage 
B) changes its operating cost structure 
C) increases its business risk 
D) increases the variability on earnings per share 
A) decreases its financial leverage 
B) changes its operating cost structure 
C) increases its business risk 
D) increases the variability on earnings per share

Question 20

The hypotheses that states that firm's try to time the market by issuing stocks when stock prices are high and repurchasing shares when prices are low is called:

Accepted Answer

A) the market theory hypothesis 
B) the market timing hypothesis 
C) the market value hypothesis 
D) the market pricing hypothesis 
A) the market theory hypothesis 
B) the market timing hypothesis 
C) the market value hypothesis 
D) the market pricing hypothesis

All of the following statements are correct except:

All of the following statements are correct except:

A greater percentage of European multinational firms use weighted average costs of capital as their project discount rates than U.S.firms.

If a firm pays out 30% of its earnings as dividends and has averaged a 20 percent return on assets,how quickly can the firm grow without needing to secure outside funding sources?

The degree of financial leverage measures the sensitivity of to changes in .

If a firm has current earnings before interest and taxes of $100,000 and interest expense of $10,000,its degree of financial leverage would be:

All of the following statements are correct except:

The ratio of debt to stock market equity has generally been highest for the smallest of U.S.firms.

All of the following statements are correct except:

All of the following methods can be used to estimate the cost of debt except:

Flotation costs include:

The sustainable growth rate measures how quickly a firm can increase its asset base over the next year without raising outside funds.

All of the following statements are correct except:

Corporate debt as a percentage of GDP grew from around in 1970 to nearly in 2007.

A firm with a DOL of 2,and no preferred stock,and no long-term debt will have a DCL of:

A firm's degree of combined leverage can be measured as degree of operating leverage __________ the degree of financial leverage:

Which of the following is a different concept from the other three?

Operating leverage affects the top portion of a firm's income statement whereas financial leverage affects the bottom half of the income statement.

Which of the following phrases make the statement false? As a firm increases its operating leverage for a given quantity of output,this:

The hypotheses that states that firm's try to time the market by issuing stocks when stock prices are high and repurchasing shares when prices are low is called:

The Financial Environment

Money and the Monetary System

Banks and Other Financial Institutions

Federal Reserve System

Policy Makers and the Money Supply

International Finance and Trade

Savings and Investment Process

Interest Rates

Time Value of Money

Bonds and Stocks: Characteristics and Valuation

Securities Markets

Financial Return and Risk Concepts

Business Organization and Financial Data

Financial Analysis and Long-Term Financial Planning

Managing Working Capital

Short-Term Business Financing

Capital Budgeting Analysis

Filters

Exam 18: Capital Structure and the Cost of Capital

All of the following statements are correct except:

All of the following statements are correct except:

A greater percentage of European multinational firms use weighted average costs of capital as their project discount rates than U.S.firms.

If a firm pays out 30% of its earnings as dividends and has averaged a 20 percent return on assets,how quickly can the firm grow without needing to secure outside funding sources?

The degree of financial leverage measures the sensitivity of __________ to changes in __________.

If a firm has current earnings before interest and taxes of $100,000 and interest expense of $10,000,its degree of financial leverage would be:

All of the following statements are correct except:

The ratio of debt to stock market equity has generally been highest for the smallest of U.S.firms.

All of the following statements are correct except:

All of the following methods can be used to estimate the cost of debt except:

Flotation costs include:

The sustainable growth rate measures how quickly a firm can increase its asset base over the next year without raising outside funds.

All of the following statements are correct except:

Corporate debt as a percentage of GDP grew from around ______ in 1970 to nearly ______ in 2007.

A firm with a DOL of 2,and no preferred stock,and no long-term debt will have a DCL of:

A firm's degree of combined leverage can be measured as degree of operating leverage __________ the degree of financial leverage:

Which of the following is a different concept from the other three?

Operating leverage affects the top portion of a firm's income statement whereas financial leverage affects the bottom half of the income statement.

Which of the following phrases make the statement false? As a firm increases its operating leverage for a given quantity of output,this:

The hypotheses that states that firm's try to time the market by issuing stocks when stock prices are high and repurchasing shares when prices are low is called:

The Financial Environment

Money and the Monetary System

Banks and Other Financial Institutions

Federal Reserve System

Policy Makers and the Money Supply

International Finance and Trade

Savings and Investment Process

Interest Rates

Time Value of Money

Bonds and Stocks: Characteristics and Valuation

Securities Markets

Financial Return and Risk Concepts

Business Organization and Financial Data

Financial Analysis and Long-Term Financial Planning

Managing Working Capital

Short-Term Business Financing

Capital Budgeting Analysis

Filters

The degree of financial leverage measures the sensitivity of to changes in .

Corporate debt as a percentage of GDP grew from around in 1970 to nearly in 2007.