Question 1

Agency costs arise when ________.

Accepted Answer

A)  there are high labor costs 
B)  input costs are higher than interest costs 
C)  interest costs exceed dividend payments 
D)  conflicts of interest exist between stakeholders 
A)  there are high labor costs 
B)  input costs are higher than interest costs 
C)  interest costs exceed dividend payments 
D)  conflicts of interest exist between stakeholders

Question 2

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 strong?

Accepted Answer

A)  8.0% 
B)  8.95% 
C)  28.6% 
D)  38.0% 
A)  8.0% 
B)  8.95% 
C)  28.6% 
D)  38.0%

Question 3

A firm requires an investment of $60,000 and borrows $30,000 at 9%. If the return on equity is 22% and the tax rate is 35%, what is the firm's WACC?

Accepted Answer

A)  11.1% 
B)  13.9% 
C)  16.7% 
D)  27.9% 
A)  11.1% 
B)  13.9% 
C)  16.7% 
D)  27.9%

Question 4

How does the interest paid by a firm affect its value to investors?

Accepted Answer

The interest paid by a firm is tax-deduc

Question 5

What considerations should managers have while deciding on firms' capital structure?

Accepted Answer

Managers should first take a look at the

Question 6

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 7

Equity in a firm with no debt is called ________.

Accepted Answer

A)  levered equity 
B)  unlevered equity 
C)  risk-free equity 
D)  preferred equity 
A)  levered equity 
B)  unlevered equity 
C)  risk-free equity 
D)  preferred equity

Question 8

Assume that in addition to 1.25 billion common shares outstanding, Luther has stock options given to employees valued at $2 billion. The market value of Luther's non-cash assets is closest to ________.

Accepted Answer

A)  $22 billion 
B)  $20 billion 
C)  $25 billion 
D)  $18 billion 
A)  $22 billion 
B)  $20 billion 
C)  $25 billion 
D)  $18 billion

Question 9

The use of leverage as a way to signal ________ information to investors is known as the signaling theory of debt.

Accepted Answer

A)  good 
B)  bad 
C)  random 
D)  none of the above 
A)  good 
B)  bad 
C)  random 
D)  none of the above

Agency costs arise when ________.

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 strong?

A firm requires an investment of $60,000 and borrows $30,000 at 9%. If the return on equity is 22% and the tax rate is 35%, what is the firm's WACC?

How does the interest paid by a firm affect its value to investors?

What considerations should managers have while deciding on firms' capital structure?

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

Equity in a firm with no debt is called ________.

Assume that in addition to 1.25 billion common shares outstanding, Luther has stock options given to employees valued at $2 billion. The market value of Luther's non-cash assets is closest to ________.

The use of leverage as a way to signal ________ information to investors is known as the signaling theory of debt.

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

Agency costs arise when ________.

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 strong?

A firm requires an investment of $60,000 and borrows $30,000 at 9%. If the return on equity is 22% and the tax rate is 35%, what is the firm's WACC?

How does the interest paid by a firm affect its value to investors?

What considerations should managers have while deciding on firms' capital structure?

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

Equity in a firm with no debt is called ________.

Assume that in addition to 1.25 billion common shares outstanding, Luther has stock options given to employees valued at $2 billion. The market value of Luther's non-cash assets is closest to ________.

The use of leverage as a way to signal ________ information to investors is known as the signaling theory of debt.

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