The inexpensive nature of long-term debt in a firm’s capital structure is due to the fact that ________. A) the equity holders are the true owners of the firm B) equity capital has a fixed return C) interest payments are tax-deductible D) equity holders have a higher position in the priority of claims […]
Date: September 19th, 2020
An increase in current assets increases net working capital, thereby reducing the risk of insolvency. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
The conversion of current assets ________. A) from cash to receivables to inventory provides the cash used to pay non-current liabilities B) from inventory to receivables to marketable securities provides the cash used to buy plant and equipment C) from inventory to receivables to cash provides the cash used to pay current liabilities D) from […]
Date: September 19th, 2020
A firm’s ________ is the mix of long-term debt and equity utilized by the firm, which may significantly affect its value by affecting return and risk. A) dividend policy B) capital budget C) capital structure D) working capital ANSWER C
Date: September 19th, 2020
Capacity surpluses result in (i) product prices and (ii) profit margins. (i) (ii) a. lower higher b. higher lower c. lower lower d. higher higher ANSWER C
Date: September 19th, 2020
The lower risk nature of long-term debt in a firm’s capital structure is due to the fact that ________. A) the debt holders are the true owners of the firm B) equity capital has a fixed return C) creditors have a higher position in the priority of claims D) dividend payments are tax-deductible […]
Date: September 19th, 2020
Holding all other factors constant, a firm that is subject to a greater level of business risk should employ less total leverage than an otherwise equivalent firm that is subject to a lesser level of business risk. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
The tradeoff in the traditional tradeoff theory of optimal capital structure is between: a. agency costs of debt and information asymmetry costs of debt. b. the tax benefit of debt and the expected costs of future financial distress. c. the tax benefit of debt and agency costs of debt. ANSWER B
Date: September 19th, 2020
Assuming that the level of total assets remains unchanged, the effect of a decrease in the ratio of current assets to total assets is an increase in a firm’s risk of insolvency. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
Which of the following is a reason why equity capital is considered riskier than debt capital? A) Equity capital has a higher priority claim against assets and earnings. B) Equity capital requires regular periodic payments in the form of dividends. C) Equity capital expects dividend payments which are not tax-deductible. D) Equity capital remains invested […]
Date: September 19th, 2020
