A firm’s capital structure can be determined by examining which parts of the firm’s balance sheet? A) The long-term assets B) The debt and equity C) The short-term assets and liabilities D) None of the above because a firm’s capital structure is best observed on the income statement. ANSWER Answer: B Explanation: B) […]
________ is the risk of being unable to cover financial obligations of a firm. A) Systematic risk B) Business risk C) Financial risk D) Diversifiable risk ANSWER C
The cost of capital is ________. A) the cost of debt in a firm that finances with both debt and equity B) the cost of each financing component multiplied by that component’s percent of the total borrowed C) another name for the IRR D) All of the above ANSWER Answer: B
A decrease in current assets and an increase in current liabilities will ________ net working capital, thereby ________ the risk of insolvency. A) increase; increasing B) decrease; increasing C) increase; reducing D) decrease; reducing ANSWER B
As debt is substituted for equity in the capital structure and the debt ratio increases, the behavior of the overall cost of capital is partially explained by ________. A) the tax-deductibility of interest payments B) the increase in the number of common shares outstanding C) the reduction in risk as perceived by the common shareholders […]
Which of the following would be classified as debt lenders for a firm? A) Preferred shareholders, banks, and nonbank lenders B) Nonbank lenders, common shareholders, and commercial banks C) Preferred shareholders, common shareholders, and suppliers D) Suppliers, nonbank lenders, and commercial banks ANSWER Answer: D Explanation: D) Preferred stockholders are hybrid equity lenders, […]
Empirical evidence indicates that the market equity value of a multiple-segment firm generally is (i) than the sum of the imputed market values of its individual segments, a phenomenon called the (ii). (i) __(ii)__ a. lower diversification discount. b. lower segment effect. c. higher diversification premium. d. higher segment effect. ANSWER A
Which of the following would be classified as equity financing for a firm? A) Preferred shareholders, banks, and nonbank lenders B) Nonbank lenders, common shareholders, and commercial banks C) Preferred shareholders, common shareholders, and retained earnings D) Suppliers, nonbank lenders, and commercial banks ANSWER Answer: C Explanation: C) Bank and nonbank lenders, as […]
A(n) ________ in current assets increases net working capital, thereby ________ the risk of insolvency. A) decrease; increasing B) increase; increasing C) increase; reducing D) decrease; reducing ANSWER C
When a company borrows money from a bank or sells bonds, it is called ________. A) capital structure financing B) stock financing C) equity financing D) debt financing ANSWER Answer: D
