Quiz Ch 13 – Identifying the Optimal Capital Structure from Given Information
Fundamentals of Financial Management, Concise
Brigham and Houston
09th Edition
Identify the optimal capital structure from the given data:
Identify the optimal capital structure from the given data:
What is the purpose of the firm’s target capital structure?
True or false: Varied borrowers possess distinct bankruptcy risks; in the event of borrower bankruptcy, lenders are unlikely to recover the complete loaned amount. Consequently, lenders demand higher rates from borrowers deemed more prone to bankruptcy.
True or false: Capital structure decisions are governed by the trade-off theory, which asserts that these decisions entail balancing the advantages and drawbacks of debt financing.
True or false: The discussed text states that a firm’s capital structure has no influence on its free cash flows since FCF solely encompasses operating cash flows, which are accessible for servicing debt, distributing dividends to shareholders, and other applications.
True or false: The probability distribution graph of ROE for a leveraged firm is likely to exhibit greater peaks compared to the distribution of a firm without leverage, assuming all other factors remain unchanged.
True or false: The act of borrowing money by a firm constitutes the utilization of financial leverage.
True or false: Maintaining all other factors constant, an upsurge in financial leverage will elevate a firm’s market (or systematic) risk, quantified by its beta coefficient.
True or false: The business risk of a firm is significantly shaped by its industry’s financial attributes, particularly the level of debt employed by the average company in the industry.
True or false: Unless excessive debt is employed, operating leverage mainly impacts EPS, whereas financial leverage affects both EPS and EBIT.