公司理财-习题库-Chap017

CHAPTER17FinancialLeverageandCapitalStructurePolicyI.DEFINITIONSHOMEMADELEVERAGEa1.Theuseofpersonalborrowingtochangetheoverallamountoffinancialleveragetowhichanindividualisexposediscalled:a.homemadeleverage.b.dividendrecapture.c.theweightedaveragecostofcapital.d.privatedebtplacement.e.personaloffset.M&MPROPOSITIONIb2.Thepropositionthatthevalueofthefirmisindependentofitscapitalstructureiscalled:a.thecapitalassetpricingmodel.b.M&MPropositionI.c.M&MPropositionII.d.thelawofoneprice.e.theefficientmarketshypothesis.M&MPROPOSITIONIIc3.Thepropositionthatthecostofequityisapositivelinearfunctionofcapitalstructureiscalled:a.thecapitalassetpricingmodel.b.M&MPropositionI.c.M&MPropositionII.d.thelawofoneprice.e.theefficientmarketshypothesis.BUSINESSRISKd4.Theequityriskderivedfromafirm’soperatingactivitiesiscalled_____risk.a.marketb.systematicc.extrinsicd.businesse.financialFINANCIALRISKe5.Theequityriskderivedfromafirm’scapitalstructurepolicyiscalled_____risk.a.marketb.systematicc.extrinsicd.businesse.financialCHAPTER17INTERESTTAXSHIELDa6.Thetaxsavingsofthefirmderivedfromthedeductibilityofinterestexpenseiscalledthe:a.interesttaxshield.b.depreciablebasis.c.financingumbrella.d.currentyield.e.tax-losscarryforwardsavings.UNLEVEREDCOSTOFCAPITALb7.Theunleveredcostofcapitalis:a.thecostofcapitalforafirmwithnoequityinitscapitalstructure.b.thecostofcapitalforafirmwithnodebtinitscapitalstructure.c.theinteresttaxshieldtimespretaxnetincome.d.thecostofpreferredstockforafirmwithequalpartsdebtandcommonstockinitscapitalstructure.e.equaltotheprofitmarginforafirmwithsomedebtinitscapitalstructure.DIRECTBANKRUPTCYCOSTSc8.Theexplicitcosts,suchasthelegalexpenses,associatedwithcorporatedefaultareclassifiedas_____costs.a.flotationb.betaconversionc.directbankruptcyd.indirectbankruptcye.unleveredINDIRECTBANKRUPTCYCOSTSc9.Thecostsofavoidingabankruptcyfilingbyafinanciallydistressedfirmareclassifiedas_____costs.a.flotationb.directbankruptcyc.indirectbankruptcyd.financialsolvencye.capitalstructureFINANCIALDISTRESSCOSTSe10.Theexplicitandimplicitcostsassociatedwithcorporatedefaultarereferredtoasthe_____costsofafirm.a.flotationb.defaultbetac.directbankruptcyd.indirectbankruptcye.financialdistressCHAPTER17STATICTHEORYOFCAPITALSTRUCTUREa11.Thepropositionthatafirmborrowsuptothepointwherethemarginalbenefitoftheinteresttaxshieldderivedfromincreaseddebtisjustequaltothemarginalexpenseoftheresultingincreaseinfinancialdistresscostsiscalledthe:a.statictheoryofcapitalstructure.b.M&MPropositionI.c.M&MPropositionII.d.capitalassetpricingmodel.e.openmarketstheorem.BANKRUPTCYb12.Thelegalproceedingforliquidatingorreorganizingafirmoperatingindefaultiscalleda:a.tenderoffer.b.bankruptcy.c.merger.d.takeover.e.proxyfight.LIQUIDATIONc13.Thecompleteterminationofafirmasagoingbusinessconcerniscalleda:a.merger.b.repurchaseprogram.c.liquidation.d.reorganization.e.divestiture.ACCOUNTINGINSOLVENCYd14.Afirmthathasnegativenetworthissaidtobe:a.experiencingabusinessfailure.b.inlegalbankruptcy.c.experiencingtechnicalinsolvency.d.experiencingaccountinginsolvency.e.inChapter11bankruptcyreorganization.REORGANIZATIONd15.Anattempttofinanciallyrestructureafailingfirmsothatitcancontinueoperatingasagoingconcerniscalleda:a.merger.b.repurchaseprogram.c.liquidation.d.reorganization.e.divestiture.CHAPTER17II.CONCEPTSCAPITALSTRUCTUREb16.Afirmshouldselectthecapitalstructurewhich:a.producesthehighestcostofcapital.b.maximizesthevalueofthefirm.c.minimizestaxes.d.isfullyunlevered.e.hasnodebt.CAPITALSTRUCTUREd17.Thevalueofafirmismaximizedwhenthe:a.costofequityismaximized.btaxrateiszero.c.leveredcostofcapitalismaximized.d.weightedaveragecostofcapitalisminimized.e.debt-equityratioisminimized.CAPITALSTRUCTUREe18.Theoptimalcapitalstructurehasbeenachievedwhenthe:a.debt-equityratioisequalto1.b.weightofequityisequaltotheweightofdebt.c.costofequityismaximizedgivenapre-taxcostofdebt.d.debt-equityratioissuchthatthecostofdebtexceedsthecostofequity.e.debt-equityratioselectedresultsinthelowestpossibleweighedaveragecostofcapital.BREAK-EVENEBITd19.ABC,Inc.iscomparingtwocapitalstructurestodeterminehowtobestfinancetheirfirm’soperations.Thefirstoptionconsistsof100percentequityfinancing.Thesecondoptionisbasedonadebt-equityratioof.40.WhatshouldABCdoiftheirexpectedearningsbeforeinterestandtaxes(EBIT)islessthanthebreak-evenlevel?Assumetherearenotaxes.a.selecttheleverageoptionbecausethedebt-equityratioislessthan.50b.selecttheleverageoptionsincetheexpectedEBITislessthanthebreak-evenlevelc.selecttheunleveredoptionsincethedebt-equityratioislessthan.50d.selecttheunleveredoptionsincetheexpectedEBITislessthanthebreak-evenlevele.cannotbedeterminedfromtheinformationprovidedBREAK-EVENEBITa20.Youhavecomputedthebreak-evenpointbetweenacapitalstructurethathasnodebtandonethathasdebt.Assumetherearenotaxes.Atthebreak-evenlevel,the:a.firmisjustearningenoughtopayforthecostofthedebt.b.firm’searningsbeforeinterestandtaxesareequaltozero.c.earningspersharefortheleveredoptionareexactlydoublethoseoftheunleveredoption.d.advantagesofleverageexceedthedisadv