Debt Policy

This question bank verified by Studydeets
All Questions
Filter by:
Question 1
Free
True/False

When there are no taxes and capital markets function well,the market value of a company does not depend on its capital structure.

Choose correct answer/s

True

False

Check answer
Question 2
Free
True/False

When asked about key factors of debt policy,financial managers commonly mention the tax advantage of debt and the importance of maintaining their credit rating.

Choose correct answer/s

True

False

Check answer
Question 3
Free
True/False

Loan covenants can ensure that companies will accept all positive-NPV investments and reject negative ones.

Choose correct answer/s

True

False

Check answer
Question 4
Free
True/False

Debt finance does not affect the operating risk but it does add financial risk.

Choose correct answer/s

True

False

Check answer
Question 5
Free
True/False

Debt financing affects neither the business risk nor the financial risk of the firm.

Choose correct answer/s

True

False

Check answer
Question 6
True/False

As long as investors can borrow or lend on their own account on the same terms as the firm,they will not pay extra for firm leverage.

Choose correct answer/s
True
False
To unlock the question
Question 7
True/False

Once you recognize the fact that debt also increases financial risk and causes shareholders to demand a higher return on their investment,debt is no cheaper than equity.

Choose correct answer/s
True
False
To unlock the question
Question 8
True/False

At moderate debt levels the probability of financial distress is trivial and therefore the tax advantages of debt dominate.

Choose correct answer/s
True
False
To unlock the question
Question 9
True/False

Debt financing affects neither the operating risk nor the business risk of the firm.

Choose correct answer/s
True
False
To unlock the question
Question 10
True/False

Financial leverage describes debt financing's amplification of the effects of changes in operating income on the returns to stockholders.

Choose correct answer/s
True
False
To unlock the question
Question 11
True/False

Financial risk is the risk to shareholders that results from debt financing.

Choose correct answer/s
True
False
To unlock the question
Question 12
True/False

MM's proposition I,or the debt-irrelevance proposition,states that the value of a firm is unaffected by its capital structure.

Choose correct answer/s
True
False
To unlock the question
Question 13
True/False

According to MM,debt restructuring will not change the firm's overall value.

Choose correct answer/s
True
False
To unlock the question
Question 14
True/False

According to MM's proposition II the expected return on equity is equal to the expected return on assets for a levered firm.

Choose correct answer/s
True
False
To unlock the question
Question 15
True/False

MM's proposition II states that the expected return on assets increases as the debt-equity ratio increases.

Choose correct answer/s
True
False
To unlock the question
Question 16
True/False

MM's proposition II states that the required return on equity increases as the firm's debt-equity ratio increases.

Choose correct answer/s
True
False
To unlock the question
Question 17
True/False

The benefit of an interest tax shield is captured by the equity holders.

Choose correct answer/s
True
False
To unlock the question
Question 18
True/False

The risk of tax shields can be reasonably assumed to be the same as that of the interest payments generating them.

Choose correct answer/s
True
False
To unlock the question
Question 19
True/False

Even after relaxing the MM assumption of no taxes,restructuring should not affect the value of the firm.

Choose correct answer/s
True
False
To unlock the question
Question 20
True/False

Costs of financial distress are costs arising from bankruptcy or distorted business decisions before bankruptcy.

Choose correct answer/s
True
False
To unlock the question