Quiz Ch 18 – T/F Outcome of Financial Distress: Bankruptcy
Principles of Corporate Finance
Brealey, Myers, and Allen
13th Edition
True or false: Financial distress invariably leads to bankruptcy.
True or false: Financial distress invariably leads to bankruptcy.
True or false: According to the pecking order theory, firms tend to choose internal financing over external financing.
True or false: The privilege to default is advantageous for shareholders.
True or false: In corporate financing, the prevailing tax code favors the preference for equity over debt.
True or false: The interaction of corporate and personal taxes, represented by (1 − Tp) and (1 − TpE)(1 − Tc), respectively, reduces the significance of the debt policy decision when they are equal.
True or false: Profitable firms are anticipated to exhibit higher average debt ratios in line with the trade-off theory.
Which tax rate should always be applied when computing the tax shield of interest payments for a corporation?
Which tax rate is utilized when determining the tax shields provided by debt?
When a firm opts to raise capital by issuing new stock, what does it communicate to the market?
In the context of the trade-off theory of capital structure, which statement accurately describes the optimal capital structure?