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Principles of Finance, 6e
Besley/Brigham
Chapter 14
Principles of Finance, 6e
Besley/Brigham
Chapter 14
Principles of Finance, 6e
Besley/Brigham
Chapter 14
Cengage Learning Testing, Powered by Cognero
Page 27
ANSWER:
e
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 - Knowledge
Business Program-6 - Reflective Thinking
DISC-FIN-07 - Finance Function
Time Estimate-a - 5 min.
TOPICS:
Business Risk Determinants
53. It has been shown that a firm's beta ____ an increase in its degree of financial leverage.
a.
increases with
b.
decreases with
c.
remains constant with
d.
is not related to
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 - Knowledge
Business Program-6 - Reflective Thinking
DISC-FIN-07 - Finance Function
Time Estimate-a - 5 min.
TOPICS:
Beta and Capital Structure
54. ____ information is the situation in which managers have better information about the firm's prospects.
a.
Asymmetric
b.
Symmetric
c.
Perfect
d.
Public
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 - Knowledge
Business Program-6 - Reflective Thinking
DISC-FIN-07 - Finance Function
Time Estimate-a - 5 min.
TOPICS:
Asymmetric Information
55. According to the signaling theory of capital structure, a firm with favorable prospects should raise new capital by
issuing ____ and a firm with unfavorable prospects raise new capital by issuing ____.
a.
debt; equity
b.
equity; debt
c.
debt; debt
d.
equity; equity
Principles of Finance, 6e
Besley/Brigham
Chapter 14
Cengage Learning Testing, Powered by Cognero
Page 28
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 - Knowledge
Business Program-6 - Reflective Thinking
DISC-FIN-07 - Finance Function
Time Estimate-a - 5 min.
TOPICS:
Signaling Theory Predictions
56. Once a target capital structure for a firm is determined the firm ____.
a.
does not allow the target to change.
b.
uses it as guide for raising capital.
c.
issues debt to lower leverage.
d.
none of the above.
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 - Knowledge
Business Program-6 - Reflective Thinking
DISC-FIN-07 - Finance Function
Time Estimate-a - 5 min.
TOPICS:
Target Capital Structure
57. If you own 100 shares in a company that announces a 2-for-1 stock split (with no other announcement), you should
a.
be happy because your investment has doubled.
b.
be happy because you will be receiving cash from your investment as a result of the split.
c.
be sad because the value of your investment will decline because of the split.
d.
be indifferent because the overall value of your investment has not changed.
ANSWER:
d
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 - Knowledge
Business Program-6 - Reflective Thinking
DISC-FIN-07 - Finance Function
Time Estimate-a - 5 min.
TOPICS:
Stock Split
58. Which of the following is not a factor that influences capital structure decisions for firms?
a.
financial flexibility
b.
rational investors
c.
business risk
d.
tax position
ANSWER:
b
Principles of Finance, 6e
Besley/Brigham
Chapter 14
Cengage Learning Testing, Powered by Cognero
Page 31
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
65. If a firm uses no debt, the uncertainty inherent in projections of future returns on equity can be described as business
risk.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 - Knowledge
Business Program-6 - Reflective Thinking
DISC-FIN-08 - Risk and Return
Time Estimate-a - 5 min.
TOPICS:
Business Risk
66. Business risk, which is the risk inherent in a firm's assets if it uses less than its optimal amount of debt, is one
important influence in the capital structure decision.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 - Knowledge
Business Program-6 - Reflective Thinking
DISC-FIN-08 - Risk and Return
Time Estimate-a - 5 min.
TOPICS:
Business Risk
67. The ability of a firm to raise sufficient capital on competitive terms under adverse conditions in order to sustain steady
operations is referred to as financial flexibility.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 - Knowledge
Business Program-6 - Reflective Thinking
DISC-FIN-08 - Risk and Return
Time Estimate-a - 5 min.
TOPICS:
Financial Flexibility
68. As long as a firm is near its target capital structure it will not have to concern itself with financial flexibility.
a.
True
b.
False
ANSWER:
False
POINTS:
1
Principles of Finance, 6e
Besley/Brigham
Chapter 14
Cengage Learning Testing, Powered by Cognero
Page 33
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
72. Other things held constant, an increase in financial leverage will increase a firm's market (or systematic) risk as
measured by its beta coefficient.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 - Knowledge
Business Program-6 - Reflective Thinking
DISC-FIN-08 - Risk and Return
Time Estimate-a - 5 min.
TOPICS:
Financial Leverage
73. Financial leverage affects both EPS and EBIT, while operating leverage only affects EBIT.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 - Knowledge
Business Program-6 - Reflective Thinking
DISC-FIN-08 - Risk and Return
Time Estimate-a - 5 min.
TOPICS:
Financial and Operating Leverage
74. The level of sales at which expected EPS will be the same regardless of whether the firm uses debt or common stock
financing is called the EPS indifference point.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 - Knowledge
Business Program-6 - Reflective Thinking
DISC-FIN-08 - Risk and Return
Time Estimate-a - 5 min.
TOPICS:
EPS Indifference Point
75. Asymmetric information involves a situation where the firm's managers have different (better) information about their
firm's prospects than do investors.
a.
True
b.
False
ANSWER:
True
