Quiz Ch 16 – Principles of the Pecking-Order Theory
Fundamentals of Corporate Finance
Brealey, Myers, and Marcus
10th Edition
According to the pecking-order theory, why do less profitable firms tend to borrow more?
According to the pecking-order theory, why do less profitable firms tend to borrow more?
What do firms typically do according to the trade-off theory of capital structure?
Who receives the benefits of the interest tax shield?
What happens to the firm’s expected return on equity when a firm’s debt-equity ratio gets closer to zero?
When a firm is subject to tax payments, MM’s Proposition I no longer applies, and the capital structure of the firm becomes significant due to what factor?
True or false: A vital assumption in MM’s Proposition I also known as the debt-irrelevance proposition is that the borrowing rates for both the company and individuals are the same.
True or false: The potential distress costs can substantially impact firm value if additional borrowing quickly escalates the likelihood of financial distress.
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: Debt financing leaves the operating risk unaffected but introduces financial risk.