Quiz Ch 16 – T/F Impact of Debt Financing on Risk
Fundamentals of Corporate Finance
Brealey, Myers, and Marcus
10th Edition
True or false: The utilization of debt financing has NO impact on the operating risk or business risk of the firm.
True or false: The utilization of debt financing has NO impact on the operating risk or business risk of the firm.
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: Financial managers frequently cite the tax advantages of debt and the significance of preserving their credit rating as essential factors in debt policy.
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.
True or false: Signals perceived by management play a vital role in the pecking-order theory.
True or false: MM’s Proposition I also known as the debt-irrelevance proposition maintains that a firm’s value remains consistent regardless of its capital structure.
True or false: According to MM’s Proposition II, the firm’s debt-equity ratio increase leads to a higher required return on equity.
True or false: According to MM’s Proposition II, the expected return on assets rises as the debt-equity ratio increases.