Because of the extensive research conducted in recent years in the area of capital structure theory, it is now possible for financial managers to pinpoint with great accuracy a firm’s optimal capital structure. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
Erosion is the additional cash generated by a new project beyond the current cash flow with the addition of a specific new project. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: INCREMENTAL CASH FLOW is the additional cash generated by a new project beyond the current cash flow with […]
Date: September 19th, 2020
Despite the extensive research conducted in recent years in the area of capital structure theory, it is not yet possible to provide financial managers with a specified methodology for use in determining a firm’s optimal capital structure. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
Continuing with the numbers from the previous question, compute new value of the firm’s levered equity, , after the following actions by the firm’s management: Management issues additional pure-discount debt which has a promised payment of X’=621 at T=3 and has the same priority as the firm’s original debt. The firm receives total proceeds of […]
Date: September 19th, 2020
Name and describe three issues that can affect the incremental cash flow of a new project. What will be an ideal response? ANSWER Answer: Examples of issues that can affect the incremental cash flow of a new project are: Sunk Costs, Opportunity Costs, Erosion Costs, Synergy Gains, Working Capital, Capital Expenditures, and Depreciation […]
Date: September 19th, 2020
A shift toward more fixed costs increases business risk, which in turn causes earnings before interest and taxes to increase by less for a given increase in sales. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
In general, non-U.S. companies have much higher debt ratios than their U.S. counterparts because financial markets are much more developed in the United States than elsewhere. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
All of the following were mentioned in the text as means by which the manager of a firm may decrease the his or her personal exposure to the firm’s risk (on a self-serving basis) EXCEPT: a. excessive corporate diversification b. bias toward investments with near-term payoffs c. securing his or her lifetime compensation with a […]
Date: September 19th, 2020
________ involve(s) a cash flow that never occurs, but we need to add it as a cost or outflow of a new project. A) Cost recovery of divested assets B) Capital expenditures C) Sunk costs D) Opportunity costs ANSWER Answer: D
Date: September 19th, 2020
________ cash flow is the increase in cash generated by a new project above the current cash flow without the new project. A) Future B) Current C) Discounted D) Incremental ANSWER Answer: D
Date: September 19th, 2020
