The pecking order explanation of capital structure states that a hierarchy of financing exists for firms, in which new external debt financing is employed first, followed by retained earnings and finally by external equity financing. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
Miller and Rock (1985) developed an ingenious signaling model in which __ by a firm serve as powerful signals of the firm’s earnings capacity, and thus its value. Any such _ reveal that the firm has been generating, and is expected to continue to generate, high net cash inflows. a. cash payouts b. debt issuance […]
Date: September 19th, 2020
In general, a firm’s theoretical optimal capital structure is that which balances the tax benefits of equity financing against the increase probability of bankruptcy that results from its use. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
The more predictable a firm’s cash inflows, the more net working capital it will need. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
A gain on disposal is recognized when the selling price of the asset is ________ the book value. A) greater than B) equal to C) less than D) greater than or equal to ANSWER Answer: A
Date: September 19th, 2020
Western Inc. purchases a machine for $15,000. This machine qualifies as a five-year recovery asset under MACRS with the fixed depreciation percentages as follows: year 1 = 20.00%; year 2 = 32.00%; year 3 = 19.20%; year 4 = 11.52%. Western has a tax rate of 33%. If the machine is sold at the end […]
Date: September 19th, 2020
As firms are unable to match cash inflows to outflows with certainty, most of them need current liabilities. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
A loss on disposal is recognized when the selling price of the asset is ________ the book value. A) greater than B) equal to C) less than D) less than or equal to ANSWER Answer: C
Date: September 19th, 2020
The accelerated write-off of capital costs in MACRS depreciation provides a taxable expense that reduces taxes at a faster rate than with straight-line depreciation. Therefore, according to ________ concepts, we can surmise that bigger tax cuts in the earlier years and lower tax cuts in the later years are better than a steady tax cut […]
Date: September 19th, 2020
The advantage of ________ over ________ depreciation is that you can write off more of your capital costs in the earlier years. A) straight-line depreciation; the modified accelerated cost recovery system B) straight-line depreciation; straight-line deductions C) MACRS; straight-line depreciation D) MACRS; straight-line deductions ANSWER Answer: C
Date: September 19th, 2020
