Exam 18: Capital Structure and the Cost of Capital

Smith Company has a degree of operating leverage of 5, while an industry competitor, Johnson Company, has a degree of operating leverage of 2.Supplied with this knowledge, pick the response below that is most typical of Johnson Company.

(Multiple Choice)

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Question 121

Which of the following affects a firm's choice of capital structures?

(Multiple Choice)

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Question 122

All of the following statements are correct except:

(Multiple Choice)

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Question 123

The pecking order hypothesis implies that firm's have no optimal debt/equity ratios.

(True/False)

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Question 124

The cost of debt represents the minimum acceptable rate of return to a firm on a project of average risk.

(True/False)

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Question 125

What is Ningbo Shipping's WACC if it's after tax cost of debt is 3.5%, it's cost of retained earnings is 14%, and the firm's market value of debt is $40 million while the market value of its equity is $60 million?

(Multiple Choice)

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Question 126

All of the following statements are correct except:

(Multiple Choice)

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Question 127

The firm's capital structure is the mix of debt and equity used to finance its assets.

(True/False)

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Question 128

When retained earnings are used up and new common stock is issued, we know that the cost of:

(Multiple Choice)

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Question 129

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

(True/False)

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Question 130

The degree of financial leverage measures the sensitivity of earnings per share to changes in EBIT.

(True/False)

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Question 131

The degree of combined leverage is measured by adding the degree of operating leverage and degree of financial leverage.

(True/False)

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Question 132

All of the following statements are correct except:

(Multiple Choice)

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Question 133

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

(Multiple Choice)

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Question 134

If firms select the proportion of debt in their capital structures in order to balance the benefits of tax-deducible interest payments with opportunity costs, this would support the notion of:

(Multiple Choice)

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Question 135

Which of the following is a correct way to calculate degree of combined leverage?

(Multiple Choice)

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Question 136

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:

(Multiple Choice)

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Question 137

Ningbo Shipping, which has an average tax rate of 40 percent, would like to estimate the after-tax cost of debt for a 15-year, 12 percent, $1,000 par value bond, selling at $950.Based on this information, the after-tax cost of debt is:

(Multiple Choice)

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Question 138

A company with a DCL of 12 and a DFL of 2 has a DOL of?

(Multiple Choice)

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Question 139

Some classes of common equity may have superior voting rights.

(True/False)

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Question 140

Showing 121 - 140 of 151

Smith Company has a degree of operating leverage of 5, while an industry competitor, Johnson Company, has a degree of operating leverage of 2.Supplied with this knowledge, pick the response below that is most typical of Johnson Company.

Which of the following affects a firm's choice of capital structures?

All of the following statements are correct except:

The pecking order hypothesis implies that firm's have no optimal debt/equity ratios.

The cost of debt represents the minimum acceptable rate of return to a firm on a project of average risk.

What is Ningbo Shipping's WACC if it's after tax cost of debt is 3.5%, it's cost of retained earnings is 14%, and the firm's market value of debt is $40 million while the market value of its equity is $60 million?

All of the following statements are correct except:

The firm's capital structure is the mix of debt and equity used to finance its assets.

When retained earnings are used up and new common stock is issued, we know that the cost of:

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

The degree of financial leverage measures the sensitivity of earnings per share to changes in EBIT.

The degree of combined leverage is measured by adding the degree of operating leverage and degree of financial leverage.

All of the following statements are correct except:

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

If firms select the proportion of debt in their capital structures in order to balance the benefits of tax-deducible interest payments with opportunity costs, this would support the notion of:

Which of the following is a correct way to calculate degree of combined leverage?

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:

Ningbo Shipping, which has an average tax rate of 40 percent, would like to estimate the after-tax cost of debt for a 15-year, 12 percent, $1,000 par value bond, selling at $950.Based on this information, the after-tax cost of debt is:

A company with a DCL of 12 and a DFL of 2 has a DOL of?

Some classes of common equity may have superior voting rights.

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Policy Makers and the Money Supply

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