The reason why maximizing share value and maximizing EPS do not give the same optimal capital structure is because ________. A) EPS maximization does not consider risk B) share value maximization does not consider risk C) EPS maximization considers cash flows D) EPS maximization does consider risk ANSWER A
Date: September 19th, 2020
A firm with highly unpredictable sales revenue would best choose ________ funding strategy to minimize risk. A) the aggressive B) the conservative C) the trade-off D) a seasonal ANSWER B
Date: September 19th, 2020
Tangshan Mining Company must choose its optimal capital structure. Currently, the firm has a 40 percent debt ratio and the firm expects to generate a dividend next year of $4.89 per share and dividends are expected to grow at a constant rate of 5 percent for the foreseeable future. Stockholders currently require a 10.89 percent […]
Date: September 19th, 2020
The basic shortcoming of the EBIT-EPS approach to capital structure is ________. A) that the optimal capital structure is difficult to compute B) its disregard for the presence of preferred stock in the capital structure C) its disregard for the firm’s dividend policy D) that it concentrates on the maximization of EPS rather than the […]
Date: September 19th, 2020
Gompers (1996) argued that smaller, younger VCs often bring their firms public earlier in order to establish a reputation and therefore attract additional capital in the future. He refers to such self-serving behavior on the part of a VC as a. grandstanding. b. boasting. c. reputation building. d. repugnant. ANSWER A
Date: September 19th, 2020
The major shortcoming of the EBIT-EPS approach to capital structure is that ________. A) the technique does not promote the maximization of shareholder wealth B) the technique does not consider the cost of capital C) the technique only considers leverage-related risk D) the technique does not maximize earnings per share ANSWER A
Date: September 19th, 2020
Some pre-IPO shareholders may wish to take the opportunity afforded by the IPO to cash out some or all of their shares in the (i) portion of the IPO. IPO firms also generally raise funds for the firm in the (ii) portion of the offering. (i) (ii) a. primary secondary b. secondary primary c. tertiary […]
Date: September 19th, 2020
Gompers’ (1995) theoretical model of venture financing focused on mitigating principal-agent conflicts between the entrepreneur and an outside financier. His model explains why ventures are developed in stages: the end of each stage is a. a cash-out opportunity. b. an opportunity to harvest parts of the venture. c. a time for management to rest and […]
Date: September 19th, 2020
Assuming a 40 percent tax rate, what is the financial breakeven point for each plan? (See Table 12.1 ) What will be an ideal response? ANSWER Financial breakeven point = Interest + Preferred Dividends / (1 – t) Financing Plan 1: FBP = $25,000 +$ 3,000 / (1 – 0.40 ) = $30,000 […]
Date: September 19th, 2020
Admati and Pfleiderer (1994) argued that by having both inside and outside investors contribute to a venture, , and thus a rational continuation/termination decision would be made at each stage of development. a. both information asymmetry and principal-agent problems are resolved b. taxes and risk are both minimized c. the overinvestment and underinvestment problems are […]
Date: September 19th, 2020
