corporation-finance-test-bank-chapter-16--答案

Chapter16-FinancialLeverageandCapitalStructurePolicy16-1Chapter16FinancialLeverageandCapitalStructurePolicyMultipleChoiceQuestions1.Homemadeleverageis:A.theincurrenceofdebtbyacorporationinordertopaydividendstoshareholders.B.theexclusiveuseofdebttofundacorporateexpansionproject.C.theborrowingorlendingofmoneybyindividualshareholdersasameansofadjustingtheirleveloffinancialleverage.D.bestdefinedasanincreaseinafirm'sdebt-equityratio.E.thetermusedtodescribethecapitalstructureofaleveredfirm.2.Whichoneofthefollowingstatesthatthevalueofafirmisunrelatedtothefirm'scapitalstructure?A.CapitalAssetPricingModelB.M&MPropositionIC.M&MPropositionIID.LawofOnePriceE.EfficientMarketsHypothesis3.Whichoneofthefollowingstatesthatafirm'scostofequitycapitalisdirectlyandproportionallyrelatedtothefirm'scapitalstructure?A.CapitalAssetPricingModelB.M&MPropositionIC.M&MPropositionIID.LawofOnePriceE.EfficientMarketsHypothesis4.Whichoneofthefollowingistheequityriskthatismostrelatedtothedailyoperationsofafirm?A.marketriskB.systematicriskC.extrinsicriskD.businessriskE.financialriskChapter16-FinancialLeverageandCapitalStructurePolicy16-25.Whichoneofthefollowingistheequityriskrelatedtoafirm'scapitalstructurepolicy?A.marketB.systematicC.extrinsicD.businessE.financial6.Butter&Jellyreduceditstaxeslastyearby$350byincreasingitsinterestexpenseby$1,000.Whichofthefollowingtermsisusedtodescribethistaxsavings?A.interesttaxshieldB.interestcreditC.financingshieldD.currenttaxyieldE.tax-lossinterest7.Theunleveredcostofcapitalreferstothecostofcapitalfora(n):A.privateentity.B.all-equityfirm.C.governmentalentity.D.privateindividual.E.corporateshareholder.8.Theexplicitcosts,suchaslegalandadministrativeexpenses,associatedwithcorporatedefaultareclassifiedas_____costs.A.flotationB.issueC.directbankruptcyD.indirectbankruptcyE.unleveredChapter16-FinancialLeverageandCapitalStructurePolicy16-39.Thecostsincurredbyabusinessinanefforttoavoidbankruptcyareclassifiedas_____costs.A.flotationB.directbankruptcyC.indirectbankruptcyD.financialsolvencyE.capitalstructure10.Bydefinition,whichofthefollowingcostsareincludedinthetermfinancialdistresscosts?I.directbankruptcycostsII.indirectbankruptcycostsIII.directcostsrelatedtobeingfinanciallydistressed,butnotbankruptIV.indirectcostsrelatedtobeingfinanciallydistressed,butnotbankruptA.IonlyB.IIIonlyC.IandIIonlyD.IIIandIVonlyE.I,II,III,andIV11.Thepropositionthatafirmborrowsuptothepointwherethemarginalbenefitoftheinteresttaxshieldderivedfromincreaseddebtisjustequaltothemarginalexpenseoftheresultingincreaseinfinancialdistresscostsiscalled:A.thestatictheoryofcapitalstructure.B.M&MPropositionI.C.M&MPropositionII.D.thecapitalassetpricingmodel.E.theopenmarketstheorem.12.Whichoneofthefollowingisthelegalproceedingunderwhichaninsolventfirmcanbereorganized?A.restructureprocessB.bankruptcyC.forcedmergerD.legaltakeoverE.rightsofferChapter16-FinancialLeverageandCapitalStructurePolicy16-413.Abusinessfirmceasestoexistasagoingconcernasaresultofwhichoneofthefollowing?A.divestitureB.sharerepurchaseC.liquidationD.reorganizationE.capitalrestructuring14.EdwardsFarmProductswasunabletomeetitsfinancialobligationsandwasforcedintousinglegalproceedingstorestructureitselfsothatitcouldcontinueasaviablebusiness.Theprocessthisfirmunderwentisknownasa:A.merger.B.repurchaseprogram.C.liquidation.D.reorganization.E.divestiture.15.Theabsolutepriorityruledetermines:A.whenafirmmustbedeclaredofficiallybankrupt.B.howadistressedfirmisreorganized.C.whichjudgeisassignedtoaparticularbankruptcycase.D.howlongareorganizedfirmisallowedtoremainunderbankruptcyprotection.E.whichpartiesreceivepaymentfirstinabankruptcyproceeding.16.Afirmshouldselectthecapitalstructurethat:A.producesthehighestcostofcapital.B.maximizesthevalueofthefirm.C.minimizestaxes.D.isfullyunlevered.E.equatesthevalueofdebtwiththevalueofequity.Chapter16-FinancialLeverageandCapitalStructurePolicy16-517.Thevalueofafirmismaximizedwhenthe:A.costofequityismaximized.B.taxrateiszero.C.leveredcostofcapitalismaximized.D.weightedaveragecostofcapitalisminimized.E.debt-equityratioisminimized.18.Theoptimalcapitalstructurehasbeenachievedwhenthe:A.debt-equityratioisequalto1.B.weightofequityisequaltotheweightofdebt.C.costofequityismaximizedgivenapre-taxcostofdebt.D.debt-equityratioissuchthatthecostofdebtexceedsthecostofequity.E.debt-equityratioresultsinthelowestpossibleweightedaveragecostofcapital.19.AAToursiscomparingtwocapitalstructurestodeterminehowtobestfinanceitsoperations.Thefirstoptionconsistsofallequityfinancing.Thesecondoptionisbasedonadebt-equityratioof0.45.WhatshouldAAToursdoifitsexpectedearningsbeforeinterestandtaxes(EBIT)arelessthanthebreak-evenlevel?Assumetherearenotaxes.A.selecttheleverageoptionbecausethedebt-equityratioislessthan0.50B.selecttheleverageoptionsincetheexpectedEBITislessthanthebreak-evenlevelC.selecttheunleveredoptionsincethedebt-equityratioislessthan0.50D.selecttheunleveredoptionsincetheexpectedEBITislessthanthebreak-evenlevelE.cannotbedeterminedfromtheinformationprovided20.Youhavecomputedthebreak-evenpoint