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30.
M & M Proposition I with tax supports the theory that:
31.
M & M Proposition I with taxes is based on the concept that:
32.
M & M Proposition II with taxes:
33.
The present value of the interest tax shield is expressed as:
34.
The interest tax shield has no value when a firm has a:
I. tax rate of zero.
II. debt-equity ratio of 1.
III. zero debt.
IV. zero leverage.
35.
The interest tax shield is a key reason why:
36.
Based on M & M Proposition II with taxes, the weighted average cost of capital:
37.
Bankruptcy:
38.
Which one of the following is a direct bankruptcy cost?
39.
If a firm has the optimal amount of debt, then the:
40.
Which one of the following has the greatest tendency to increase the percentage of debt
included in the optimal capital structure of a firm?
41.
The capital structure that maximizes the value of a firm also:
42.
The optimal capital structure:
43.
The static theory of capital structure advocates that the optimal capital structure for a
firm:
44.
The basic lesson of M & M Theory is that the value of a firm is dependent upon:
45.
Which form of financing do firms prefer to use first according to the pecking-order theory?
46.
Which of the following are correct according to pecking-order theory?
I. Firms stockpile internally-generated cash.
II. There is an inverse relationship between a firm's profit level and its debt level.
III. Firms avoid external debt at all costs.
IV. A firm's capital structure is dictated by its need for external financing.
47.
Corporations in the U.S. tend to:
48.
In general, the capital structures used by U.S. firms:
49.
A firm is technically insolvent when:
50.
Which one of the following statements related to Chapter 7 bankruptcy is correct?
51.
Which one of the following will generally have the highest priority when assets are
distributed in a bankruptcy proceeding?
52.
A firm may file for Chapter 11 bankruptcy:
I. in an attempt to gain a competitive advantage.
II. using a prepack.
III. while allowing the current management to continue running the firm.
IV. only after the firm becomes insolvent.
53.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005:
54.
Kelso Electric is debating between a leveraged and an unleveraged capital structure. The
all equity capital structure would consist of 40,000 shares of stock. The debt and equity
option would consist of 25,000 shares of stock plus $280,000 of debt with an interest rate
of 7 percent. What is the break-even level of earnings before interest and taxes between
these two options? Ignore taxes.
55.
Holly's is currently an all equity firm that has 9,000 shares of stock outstanding at a
market price of $45 a share. The firm has decided to leverage its operations by issuing
$120,000 of debt at an interest rate of 9.5 percent. This new debt will be used to
repurchase shares of the outstanding stock. The restructuring is expected to increase the
earnings per share. What is the minimum level of earnings before interest and taxes that
the firm is expecting? Ignore taxes.
56.
Sewer's Paradise is an all equity firm that has 5,000 shares of stock outstanding at a
market price of $15 a share. The firm's management has decided to issue $30,000 worth
of debt and use the funds to repurchase shares of the outstanding stock. The interest rate
on the debt will be 10 percent. What are the earnings per share at the break-even level of
earnings before interest and taxes? Ignore taxes.
