Exam 29: Capital Structure, Dividends, and Share Repurchases

Business erosion is a result of too little leverage and the resulting stagnation and loss of customers.

Which of the following is the most important factor in determining a company's credit rating?

Option valuation models that determine default estimates of companies have longer time horizons and therefore produce "through the cycle" estimates.

For a given firm,which of the following is most likely to be the result of lower leverage?

Which of the following is most likely to have a negative effect on share price?

Which of the following is the correct order of financing choices according to the pecking-order theory,starting with the most preferred choice?

Leverage and coverage measure the same thing but over different time horizons.

Based on the observed distribution of credit ratings,which of the following ranges of debt ratings is an effective rating level,meaning it cannot clearly be improved upon in terms of creating value for shareholders?

Describe how leverage can cause business erosion.

Although academic researchers have investigated the issue for decades,there is still no clear model for deciding a company's optimal leverage ratio (i.e. ,the leverage that would create most value for shareholders).

For a manager attempting to determine the optimal capital structure of a firm,which of the following is most accurate?