corporationfinancetestbankchapter16答案.docx

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corporationfinancetestbankchapter16答案

corporation-finance-test-bank-chapter-16--答案

Chapter16

FinancialLeverageandCapitalStructurePolicy

MultipleChoiceQuestions

1. Homemadeleverageis:

A. theincurrenceofdebtbyacorporationinordertopaydividendstoshareholders.

B. theexclusiveuseofdebttofundacorporateexpansionproject.

C. theborrowingorlendingofmoneybyindividualshareholdersasameansofadjustingtheirleveloffinancialleverage.

D. bestdefinedasanincreaseinafirm'sdebt-equityratio.

E. thetermusedtodescribethecapitalstructureofaleveredfirm.

2. Whichoneofthefollowingstatesthatthevalueofafirmisunrelatedtothefirm'scapitalstructure?

A. CapitalAssetPricingModel

B. M&MPropositionI

C. M&MPropositionII

D. LawofOnePrice

E. EfficientMarketsHypothesis

3. Whichoneofthefollowingstatesthatafirm'scostofequitycapitalisdirectlyandproportionallyrelatedtothefirm'scapitalstructure?

A. CapitalAssetPricingModel

B. M&MPropositionI

C. M&MPropositionII

D. LawofOnePrice

E. EfficientMarketsHypothesis

4. Whichoneofthefollowingistheequityriskthatismostrelatedtothedailyoperationsofafirm?

A. marketrisk

B. systematicrisk

C. extrinsicrisk

D. businessrisk

E. financialrisk

9. Thecostsincurredbyabusinessinanefforttoavoidbankruptcyareclassifiedas_____costs. 

A. flotation

B. directbankruptcy

C. indirectbankruptcy

D. financialsolvency

E. capitalstructure

10. Bydefinition,whichofthefollowingcostsareincludedintheterm"financialdistresscosts"?

I.directbankruptcycosts

II.indirectbankruptcycosts

III.directcostsrelatedtobeingfinanciallydistressed,butnotbankrupt

IV.indirectcostsrelatedtobeingfinanciallydistressed,butnotbankrupt 

A. Ionly

B. IIIonly

C. IandIIonly

D. IIIandIVonly

E. I,II,III,andIV

11. Thepropositionthatafirmborrowsuptothepointwherethemarginalbenefitoftheinteresttaxshieldderivedfromincreaseddebtisjustequaltothemarginalexpenseoftheresultingincreaseinfinancialdistresscostsiscalled:

A. thestatictheoryofcapitalstructure.

B. M&MPropositionI.

C. M&MPropositionII.

D. thecapitalassetpricingmodel.

E. theopenmarketstheorem.

12. Whichoneofthefollowingisthelegalproceedingunderwhichaninsolventfirmcanbereorganized?

A. restructureprocess

B. bankruptcy

C. forcedmerger

D. legaltakeover

E. rightsoffer

13. Abusinessfirmceasestoexistasagoingconcernasaresultofwhichoneofthefollowing?

A. divestiture

B. sharerepurchase

C. liquidation

D. reorganization

E. capitalrestructuring

14. EdwardsFarmProductswasunabletomeetitsfinancialobligationsandwasforcedintousinglegalproceedingstorestructureitselfsothatitcouldcontinueasaviablebusiness.Theprocessthisfirmunderwentisknownasa:

A. merger.

B. repurchaseprogram.

C. liquidation.

D. reorganization.

E. divestiture.

15. Theabsolutepriorityruledetermines:

A. whenafirmmustbedeclaredofficiallybankrupt.

B. howadistressedfirmisreorganized.

C. whichjudgeisassignedtoaparticularbankruptcycase.

D. howlongareorganizedfirmisallowedtoremainunderbankruptcyprotection.

E. whichpartiesreceivepaymentfirstinabankruptcyproceeding.

16. Afirmshouldselectthecapitalstructurethat:

A. producesthehighestcostofcapital.

B. maximizesthevalueofthefirm.

C. minimizestaxes.

D. isfullyunlevered.

E. equatesthevalueofdebtwiththevalueofequity.

17. Thevalueofafirmismaximizedwhenthe:

A. costofequityismaximized.

B. taxrateiszero.

C. leveredcostofcapitalismaximized.

D. weightedaveragecostofcapitalisminimized.

E. debt-equityratioisminimized.

18. Theoptimalcapitalstructurehasbeenachievedwhenthe:

A. debt-equityratioisequalto1.

B. weightofequityisequaltotheweightofdebt.

C. costofequityismaximizedgivenapre-taxcostofdebt.

D. debt-equityratioissuchthatthecostofdebtexceedsthecostofequity.

E. debt-equityratioresultsinthelowestpossibleweightedaveragecostofcapital.

19. AAToursiscomparingtwocapitalstructurestodeterminehowtobestfinanceitsoperations.Thefirstoptionconsistsofallequityfinancing.Thesecondoptionisbasedonadebt-equityratioof0.45.WhatshouldAAToursdoifitsexpectedearningsbeforeinterestandtaxes（EBIT）arelessthanthebreak-evenlevel?

Assumetherearenotaxes. 

A. selecttheleverageoptionbecausethedebt-equityratioislessthan0.50

B. selecttheleverageoptionsincetheexpectedEBITislessthanthebreak-evenlevel

C. selecttheunleveredoptionsincethedebt-equityratioislessthan0.50

D. selecttheunleveredoptionsincetheexpectedEBITislessthanthe