Question 1

In general, issuing equity may not dilute the ownership of existing shareholders if ________.

Accepted Answer

A)  the value of new shares is equal to the value of debt 
B)  the new shares are sold at a fair price 
C)  the firm has no debt financing 
D)  the firm uses debt conservatively 
A)  the value of new shares is equal to the value of debt 
B)  the new shares are sold at a fair price 
C)  the firm has no debt financing 
D)  the firm uses debt conservatively

Question 2

A firm's ________ ratio is the fraction of the firm's total value that corresponds to debt.

Accepted Answer

A)  debt-to-equity 
B)  equity-to-debt 
C)  debt-to-value 
D)  liability 
A)  debt-to-equity 
B)  equity-to-debt 
C)  debt-to-value 
D)  liability

Question 3

Equity-debt holder conflicts are more likely to arise if the risk of financial distress is high.

Accepted Answer

A) True 
 B)False

Question 4

What are indirect costs of financial distress?

Accepted Answer

Indirect costs of financial di

Question 5

Investment cash flows are independent of financing choices in a ________.

Accepted Answer

A)  market with frictions 
B)  perfect capital market 
C)  setting with frictions in investment returns 
D)  firm with leverage 
A)  market with frictions 
B)  perfect capital market 
C)  setting with frictions in investment returns 
D)  firm with leverage

Question 6

Which of the following statements is FALSE?

Accepted Answer

A)  The relative proportions of debt, equity, and other securities that a firm has outstanding constitute its capital structure. 
B)  The most common choices are financing through equity alone and financing through a combination of debt and equity. 
C)  A project's net present value (NPV) represents the value to the new investors of a firm created by the project. 
D)  When corporations raise funds from outside investors, they must choose which type of security to issue. 
A)  The relative proportions of debt, equity, and other securities that a firm has outstanding constitute its capital structure. 
B)  The most common choices are financing through equity alone and financing through a combination of debt and equity. 
C)  A project's net present value (NPV) represents the value to the new investors of a firm created by the project. 
D)  When corporations raise funds from outside investors, they must choose which type of security to issue.

Question 7

The presence of financial distress costs can explain why firms choose debt levels that are too low to exploit the interest tax shield.

Accepted Answer

A) True 
 B)False

Question 8

Consider the following equation for the question(s) below.
  
-Which of the following statements is FALSE?

Accepted Answer

A)  The levered equity return equals the unlevered return plus an extra "kick" due to leverage. 
B)  By holding a portfolio of a firm's equity and its debt, we can replicate the cash flows from holding its levered equity. 
C)  The cost of capital of levered equity is equal to the cost of capital of unlevered equity plus a premium that is proportional to the market value debt-equity ratio. 
D)  If a firm is unlevered, all of the free cash flows generated by its assets are available to be paid out to its equity holders. 
A)  The levered equity return equals the unlevered return plus an extra "kick" due to leverage. 
B)  By holding a portfolio of a firm's equity and its debt, we can replicate the cash flows from holding its levered equity. 
C)  The cost of capital of levered equity is equal to the cost of capital of unlevered equity plus a premium that is proportional to the market value debt-equity ratio. 
D)  If a firm is unlevered, all of the free cash flows generated by its assets are available to be paid out to its equity holders.

Question 9

Suppose Blank Company has only one project, as forecast above, and an unlevered cost of equity of 8%. If the company borrows $10,000 at 5% to make the investment, what is the return to equity holders if demand is weak?

Accepted Answer

A)  8.0% 
B)  -37.5% 
C)  -58.6% 
D)  10.28% 
A)  8.0% 
B)  -37.5% 
C)  -58.6% 
D)  10.28%

In general, issuing equity may not dilute the ownership of existing shareholders if ________.

A firm's ________ ratio is the fraction of the firm's total value that corresponds to debt.

Equity-debt holder conflicts are more likely to arise if the risk of financial distress is high.

What are indirect costs of financial distress?

Investment cash flows are independent of financing choices in a ________.

Which of the following statements is FALSE?

The presence of financial distress costs can explain why firms choose debt levels that are too low to exploit the interest tax shield.

Consider the following equation for the question(s) below. -Which of the following statements is FALSE?

Suppose Blank Company has only one project, as forecast above, and an unlevered cost of equity of 8%. If the company borrows $10,000 at 5% to make the investment, what is the return to equity holders if demand is weak?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

Time Value of Money: an Introduction

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Bonds

Stock Valuation

Investment Decision Rules

Fundamentals of Capital Budgeting

Stock Valuation: a Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Equity Capital

Debt Financing

Payout Policy

Financial Modeling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Option Applications and Corporate Finance

Mergers and Acquisitions

International Corporate Finance

Leasing

Insurance and Risk Management

Corporate Governance

Filters

Exam 16: Capital Structure

In general, issuing equity may not dilute the ownership of existing shareholders if ________.

A firm's ________ ratio is the fraction of the firm's total value that corresponds to debt.

Equity-debt holder conflicts are more likely to arise if the risk of financial distress is high.

What are indirect costs of financial distress?

Investment cash flows are independent of financing choices in a ________.

Which of the following statements is FALSE?

The presence of financial distress costs can explain why firms choose debt levels that are too low to exploit the interest tax shield.

Consider the following equation for the question(s) below. -Which of the following statements is FALSE?

Suppose Blank Company has only one project, as forecast above, and an unlevered cost of equity of 8%. If the company borrows $10,000 at 5% to make the investment, what is the return to equity holders if demand is weak?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

Time Value of Money: an Introduction

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Bonds

Stock Valuation

Investment Decision Rules

Fundamentals of Capital Budgeting

Stock Valuation: a Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Equity Capital

Debt Financing

Payout Policy

Financial Modeling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Option Applications and Corporate Finance

Mergers and Acquisitions

International Corporate Finance

Leasing

Insurance and Risk Management

Corporate Governance

Filters