Question 1

Interest on debt:

Accepted Answer

A) is taxed more heavily than dividends and capital gains received by shareholders. 
B) is deducted from the company's taxable income. 
C) is taxed as the corporate tax rate. 
D) none of the given options. 
A) is taxed more heavily than dividends and capital gains received by shareholders. 
B) is deducted from the company's taxable income. 
C) is taxed as the corporate tax rate. 
D) none of the given options.

Question 2

Which of the following is an implication drawn from the pecking order theory:

Accepted Answer

A) Internal financing is a last resort due to shareholders' desire for current income. 
B) Debt financing is a last resort due to the large direct and indirect bankruptcy costs associated with this form of financing. 
C) Due to high information costs associated with riskier securities,companies will only issue equity as a last resort. 
D) Managers have no preference about the form of financing they employ. 
A) Internal financing is a last resort due to shareholders' desire for current income. 
B) Debt financing is a last resort due to the large direct and indirect bankruptcy costs associated with this form of financing. 
C) Due to high information costs associated with riskier securities,companies will only issue equity as a last resort. 
D) Managers have no preference about the form of financing they employ.

Question 3

Barclay and Smith (1996)suggest that flexibility is an important factor in determining the type of debt a company uses.

Accepted Answer

A) True 
 B)False

Question 4

Leverage is found to be _________ related to investment opportunities,as measured by the ratio of market to book value.

Accepted Answer

The answer of Leverage is found to be _________ related...

Question 5

The trade-off theory cannot explain why financial leverage is similar,on average,across many countries despite different tax systems.

Accepted Answer

A) True 
 B)False

Question 6

Secure companies with a high proportion of 'assets in place' are expected to have __________ leverage than growth companies.

Accepted Answer

The answer of Secure companies with a high proportion of...

Question 7

Companies with high ratios of market value to book value tend to use:

Accepted Answer

A) debt of longer maturity and higher priority than mature companies. 
B) debt of longer maturity and lower priority than mature companies. 
C) debt of shorter maturity and lower priority than mature companies. 
D) debt of shorter maturity and higher priority than mature companies. 
A) debt of longer maturity and higher priority than mature companies. 
B) debt of longer maturity and lower priority than mature companies. 
C) debt of shorter maturity and lower priority than mature companies. 
D) debt of shorter maturity and higher priority than mature companies.

Question 8

When there is information asymmetry between managers and investors,the announcement of a new share issue is likely to cause the company's:

Accepted Answer

A) share price to rise. 
B) share price to fall. 
C) share price to rise by at least 10 per cent. 
D) price to remain unchanged. 
A) share price to rise. 
B) share price to fall. 
C) share price to rise by at least 10 per cent. 
D) price to remain unchanged.

Question 9

Maintaining reserve borrowing capacity:

Accepted Answer

A) can help overcome the problem of choosing between seeing the share price fall because of a share issue and forgoing a positive NPV project. 
B) can help raise additional finance to take advantage of profitable investments. 
C) provides the greatest value for companies that operate in industries where there are significant investment opportunities. 
D) All of the given options. 
A) can help overcome the problem of choosing between seeing the share price fall because of a share issue and forgoing a positive NPV project. 
B) can help raise additional finance to take advantage of profitable investments. 
C) provides the greatest value for companies that operate in industries where there are significant investment opportunities. 
D) All of the given options.

Question 10

Jensen (1986)argued that:

Accepted Answer

A) the announcement of a new share issue by a mature company will cause its share price to fall. 
B) the announcement of a new share issue by a high-growth company will cause its share price to fall. 
C) when debt or hybrid security issues are announced,the fall in share price should be smaller than if it is an announcement of a new share issue. 
D) the announcement of a new share issue by a mature company will cause its share price to increase. 
A) the announcement of a new share issue by a mature company will cause its share price to fall. 
B) the announcement of a new share issue by a high-growth company will cause its share price to fall. 
C) when debt or hybrid security issues are announced,the fall in share price should be smaller than if it is an announcement of a new share issue. 
D) the announcement of a new share issue by a mature company will cause its share price to increase.

Question 11

'Tax exhaustion':

Accepted Answer

A) refers to non-debt tax shields lowering a company's expected marginal tax rate only if they are large enough to reduce its taxable income to zero. 
B) refers to non-debt tax shields lowering a company's actual marginal tax rate,thus reducing the expected tax savings on additional debt. 
C) may indicate low tangible assets. 
D) none of the given options. 
A) refers to non-debt tax shields lowering a company's expected marginal tax rate only if they are large enough to reduce its taxable income to zero. 
B) refers to non-debt tax shields lowering a company's actual marginal tax rate,thus reducing the expected tax savings on additional debt. 
C) may indicate low tangible assets. 
D) none of the given options.

Interest on debt:

Which of the following is an implication drawn from the pecking order theory:

Barclay and Smith (1996)suggest that flexibility is an important factor in determining the type of debt a company uses.

Leverage is found to be _________ related to investment opportunities,as measured by the ratio of market to book value.

The trade-off theory cannot explain why financial leverage is similar,on average,across many countries despite different tax systems.

Secure companies with a high proportion of 'assets in place' are expected to have __________ leverage than growth companies.

Companies with high ratios of market value to book value tend to use:

When there is information asymmetry between managers and investors,the announcement of a new share issue is likely to cause the company's:

Maintaining reserve borrowing capacity:

Jensen (1986)argued that:

'Tax exhaustion':

Introduction

Consumption, Investment and the Capital Market

The Time Value of Money: An Introduction to Financial Mathematics

Applying the Time Value of Money to Security Valuation

Project Evaluation: Principles and Methods

The Application of Project Evaluation Methods

Risk and Return

The Capital Market

Sources of Finance: Equity

Sources of Finance: Debt

Payout Policy

Principles of Capital Structure

The Cost of Capital and Taxation Issues in Project Evaluation

Leasing and Other Equipment Finance

Capital Market Efficiency

Futures Contracts

Options and Contingent Claims

Analysis of Takeovers

International Financial Management

Management of Short-Term Assets: Inventory

Management of Short-Term Assets: Liquid Assets and Accounts Receivable

Filters

Exam 13: Capital Structure Decisions

Interest on debt:

Which of the following is an implication drawn from the pecking order theory:

Barclay and Smith (1996)suggest that flexibility is an important factor in determining the type of debt a company uses.

Leverage is found to be _________ related to investment opportunities,as measured by the ratio of market to book value.

The trade-off theory cannot explain why financial leverage is similar,on average,across many countries despite different tax systems.

Secure companies with a high proportion of 'assets in place' are expected to have __________ leverage than growth companies.

Companies with high ratios of market value to book value tend to use:

When there is information asymmetry between managers and investors,the announcement of a new share issue is likely to cause the company's:

Maintaining reserve borrowing capacity:

Jensen (1986)argued that:

'Tax exhaustion':

Introduction

Consumption, Investment and the Capital Market

The Time Value of Money: An Introduction to Financial Mathematics

Applying the Time Value of Money to Security Valuation

Project Evaluation: Principles and Methods

The Application of Project Evaluation Methods

Risk and Return

The Capital Market

Sources of Finance: Equity

Sources of Finance: Debt

Payout Policy

Principles of Capital Structure

The Cost of Capital and Taxation Issues in Project Evaluation

Leasing and Other Equipment Finance

Capital Market Efficiency

Futures Contracts

Options and Contingent Claims

Analysis of Takeovers

International Financial Management

Management of Short-Term Assets: Inventory

Management of Short-Term Assets: Liquid Assets and Accounts Receivable

Filters