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
The goal of working capital management is to ________. A) achieve a balance between short-term and long-term liabilities so that they add to the achievement of a firm’s overall goals B) achieve a balance between a firm’s non-current assets and non-current liabilities C) achieve a balance between profitability and risk that contributes positively to a […]
Date: September 19th, 2020
According to the __ hypothesis, short-term assets should be financed with short-term capital and long-term assets with long-term capital. a. maturity matching b. hedging c. risk-return d. capital asset ANSWER A
Date: September 19th, 2020
The purpose of managing current assets and current liabilities is to ________. A) achieve a balance between short-term and long-term financing of a firm B) achieve as low a level of current liabilities as possible C) achieve a balance between profitability and risk that contributes to a firm’s value D) achieve as high a level […]
Date: September 19th, 2020
The hypothesis is stated as follows: Among long-term assets, the firm should finance long-term tangible assets, such as PP&E, with long-term debt, while other long-term assets, such as investments and intangibles, must be financed with equity. a. tangible asset b. debt-equity c. collateral d. Fisher ANSWER C
Date: September 19th, 2020
The current market value of the assets of levered firm ABC, Inc is $100 million. The annual standard deviation of returns on the assets is 30%. The firm’s capital structure consists of equity and pure discount debt for which payment of $80 million is due in 5 years. The risk-free rate is 5%. Using the […]
Date: September 19th, 2020
Net working capital is defined as ________. A) total assets minus total liabilities B) total liabilities minus total assets C) current liabilities minus current assets D) current assets minus current liabilities ANSWER D
Date: September 19th, 2020
Which of the following is true of net working capital? A) When current assets of a firm exceed its current liabilities,a firm is said to have negative net working capital. B) When current assets of a firm are less than its total assets,a firm is said to have positive net working capital. C) When current […]
Date: September 19th, 2020
