Quiz Ch 16 – Optimal Capital Structure in Trade-Off Theory
Fundamentals of Corporate Finance
Brealey, Myers, and Marcus
10th Edition
In the trade-off theory of capital structure, what characterizes the optimal capital structure for any firm?
In the trade-off theory of capital structure, what characterizes the optimal capital structure for any firm?
What does MM Proposition I without taxes declare?
According to the pecking-order theory, why do less profitable firms tend to borrow more?
True or false: In the absence of taxes and under efficient capital markets, a company’s market value is independent of its capital structure.
True or false: According to the trade-off theory of capital structure, firms seek an ideal balance of debt.
True or false: Once you realize that debt increases financial risk and prompts shareholders to seek higher returns, it becomes clear that debt is not a less expensive option than equity.
True or false: Restructuring should NOT impact the firm’s value even when taxes are considered, and the MM assumption of no taxes is relaxed.
True or false: Equity holders reap the benefits of an interest tax shield.
True or false: When investors have the ability to borrow or lend independently at the same conditions as the firm, they will NOT incur extra costs for the firm’s leverage.
True or false: Loan covenants can secure a commitment from companies to accept investments with positive net present value (NPV) while turning down those with negative NPV.