Assessing Long-term Debt, Equity, And Capital Structure
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- Introduction to Financial ManagementReviewing Financial StatementsAnalyzing Financial StatementsTime Value of Money 1: Analyzing Single Cash FlowsTime Value of Money 2: Analyzing Annuity Cash FlowsUnderstanding Financial Markets and InstitutionsValuing BondsValuing StocksCharacterizing Risk and ReturnEstimating Risk and ReturnCalculating the Cost of CapitalEstimating Cash Flows on Capital Budgeting ProjectsWeighing Net Present Value and Other Capital Budgeting CriteriaWorking Capital Management and PoliciesFinancial Planning and ForecastingAssessing Long-Term Debt, Equity, and Capital StructureSharing Firm Wealth: Dividends, Share Repurchases, and Other PayoutsIssuing Capital and the Investment Banking ProcessInternational Corporate FinanceMergers and Acquisitions and Financial Distress
Question 1
Free
Multiple Choice
The mix of debt and equity that a firm uses to finance its operations is known as:
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capital structure.
capital management.
separation structure.
break even.
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Question 2
Free
Multiple Choice
If a firm changes their capital structure by immediately selling additional claims of one type of capital and using the proceeds to retire another kind of claim, they are using which type of capital structure change?
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Active
Passive
Separation
Supportive
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Question 3
Free
Multiple Choice
If a firm changes their capital structure by waiting until the firm requires additional capital to cover capital budgeting needs and then selling more of the type of claims they wish to increase, they are using which type of capital structure change?
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Active
Passive
Separation
Supportive
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Question 4
Free
Multiple Choice
Which of the following is NOT a factor for determining whether to use the active or passive approach to capital structure changes?
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How much the firm faces in flotation costs under the active management approach
How much the firm faces in debt costs under the active management approach
How quickly the firm is growing
How strongly and how quickly they wish to change the capital structure
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Question 5
Free
Multiple Choice
Another name for debt in the capital structure is:
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active.
leverage.
passive.
long position.
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Question 6
Multiple Choice
Which of the following is NOT a feature of the "perfect world" in M&M's theorem for optimal capital structure?
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No taxes
No chance of bankruptcy
Perfectly efficient markets
Asymmetric information sets for all participants
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Question 7
Multiple Choice
Which of the following is a feature of the "perfect world" in M&M's theorem for optimal capital structure?
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Income taxes
The chance of bankruptcy
Perfectly efficient markets
Asymmetric information sets for all participants
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Question 8
Multiple Choice
In M&M's perfect world, their theorem's two main propositions are referred to as which of the following?
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Active capital structure management
Passive capital structure management
Capital structure irrelevance assertion
Capital structure relevance assertion
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Question 9
Multiple Choice
Which of these is the assumption that decisions about which projects to fund are separate from the decisions about how to fund them?
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Break-even principle
Capital structure principle
Separation principle
Long position principle
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Question 10
Multiple Choice
Which of the following is a true statement?
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A firm's cost of debt increases with the use of equity in the capital structure.
A firm's cost of equity increases with the use of equity in the capital structure.
A firm's cost of equity increases with the use of debt in the capital structure.
A firm's cost of equity decreases with the use of debt in the capital structure.
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Question 11
Multiple Choice
Which of the following makes this a true statement? In this slightly more realistic world with corporate taxes, managers can:
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minimize the firm's value by taking on as much debt as possible.
maximize the firm's value by taking on as much debt as possible.
maximize the firm's value by taking on as much equity as possible.
maximize the firm's value by financing only with debt.
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Question 12
Multiple Choice
What causes the change in optimal strategy when taxes are added back to the M&M theorem?
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The fact that we have added taxation differentially
The fact that both dividends and interest are taxable to the receiver
The fact that it changes the effect that an increase in leverage has on the stockholders' expected returns
The fact that it changes the volatility of stockholders' expected returns
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Question 13
Multiple Choice
Which of the following is a true statement regarding Proposition I?
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Vu in a world with taxes is going to be more than Vu in a world without taxes.
Vu in a world with taxes is going to be less than Vu in a world without taxes.
Vu in a world with taxes is going to be equal to Vu in a world without taxes.
Vu in a world with taxes cannot be compared to Vu in a world without taxes.
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Question 14
Multiple Choice
How can an investor leverage itself more than the firm?
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By borrowing money and investing it in stock along with the money with which they started
By buying the firm's bonds
By buying the firm's preferred stock
Investors cannot leverage themselves more than the firm.
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Question 15
Multiple Choice
Which of the following is one of the most extreme examples of firm re-leveraging that occurs when someone uses a firm's debt capacity to buy out the majority of the firm's equity holders?
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Debt buyout
Equity buyout
Leveraged buyout
Separation buyout
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Question 16
Multiple Choice
The level of EBIT at which EPS will be equal for two different capital structures is known as:
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break-even EBIT.
break-even EPS.
break-even capital structures.
break-even financial structures.
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Question 17
Multiple Choice
Which of the following allows for two types of bankruptcy for which most businesses can file?
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Securities Exchange Commission
Generally Accepted Accounting Principles
The Internal Revenue Service
The United States Bankruptcy Code
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Question 18
Multiple Choice
Which type of bankruptcy involves a business liquidating their assets?
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Chapter 7
Chapter 11
Chapter 13
Chapter 9
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Question 19
Multiple Choice
Which type of bankruptcy involves an attempt to allow the firm to reorganize the business under court supervision?
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Chapter 7
Chapter 11
Chapter 13
Chapter 9
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Question 20
Multiple Choice
Which of these is the rule under which claimants are paid in a Chapter 7 bankruptcy?
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First come, first served
Absolute priority
Term structure priority
Date due priority
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