Quiz Ch 13 – T/F Definition of Capital Structure
Fundamentals of Corporate Finance
Brealey, Myers, and Marcus
10th Edition
True or false: Capital structure describes the combination of long-term debt and equity financing in a firm.
True or false: Capital structure describes the combination of long-term debt and equity financing in a firm.
True or false: A method for estimating the anticipated bond return involves determining the yield to maturity of recently issued bonds with similar characteristics and risks.
True or false: Preferred stock is NOT factored into the firm’s weighted average cost of capital (WACC).
True or false: The interest tax shield resulting from a project’s real equity financing is factored into the WACC by using the after-tax cost of equity.
True or false: The firm can benefit from interest tax shields on debt and preferred stock, but NOT on common equity.
True or false: CAPM and DDM can both determine the cost of equity financing.
True or false: Projects yielding a zero NPV when discounted at the Weighted Average Cost of Capital (WACC) will provide precisely the necessary returns to creditors and shareholders.
True or false: When a project has a zero NPV at the weighted average cost of capital, it means the project’s cash flows meet the return requirements of debtholders and shareholders.
True or false: When a project matches the firm’s risk and financing, a positive NPV occurs if its return rate exceeds the firm’s WACC.
True or false: Firms should pursue new projects only if they share the same risk as their existing assets.