Which of the following is not considered a part of the firm’s capital structure? A) Long-term debt B) Retained earnings C) Inventory D) Preferred stock ANSWER Answer: C
Date: September 19th, 2020
Michigan Manufacturing Inc. (MM) has a new project that will require the company to borrow $1,000,000. MM has made an agreement with three lenders for the needed financing. First National Bank will give $500,000 and wants 9% interest on the loan. Key West Bank will give $300,000 and wants 11% interest on the loan. Chase […]
Date: September 19th, 2020
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) […]
Date: September 19th, 2020
________ 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
Date: September 19th, 2020
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
Date: September 19th, 2020
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
Date: September 19th, 2020
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 […]
Date: September 19th, 2020
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, […]
Date: September 19th, 2020
The _ hypothesis posits that a firm may choose high leverage as a competitive strategy to either win market share from rivals or to deter entry into the industry. a. long-purse b. strategic capital structure c. competitive leverage d. leverage aggressiveness ANSWER D
Date: September 19th, 2020
What is an incremental cash flow for a project? What concepts do we need to examine to help understand how to estimate the incremental cash flow of a project? What else is needed for deciding whether or not to choose a project? What will be an ideal response? ANSWER Answer: The incremental cash […]
Date: September 19th, 2020
