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
Of the following, which is NOT a source of funds for a company? A) Common shareholders B) Commercial banks C) Preferred stockholders D) All are sources of funds for companies. ANSWER Answer: D
Which of the following is the correct order in which corporations generally raise funds to enhance the wealth of stockholders and to send positive signals to the market? A) retained earnings, equity, debt B) retained earnings, debt, equity C) debt, retained earnings, equity D) equity, retained earnings, debt ANSWER B
Which of the following is a basic source of capital for a firm? A) short-term debt B) discounts from suppliers C) current liabilities D) common stock ANSWER D
A decrease in fixed financial costs will result in a(n)________. A) increase in financial risk B) decrease in financial risk C) increase in operating leverage D) decrease in operating leverage ANSWER B
