Exam 16: Capital Structure

A firm will give a one-time cash flow of $22,000 after one year. If the project risk requires a return of 11%, what is the levered value of the firm with perfect capital markets?

Which of the following statements is FALSE?

The trade-off theory of optimal capital structure weighs the benefits of debt against the costs o?

A firm requires an investment of $20,000 and borrows $10,000 at 8%. If the return on equity is 20%, what is the firm's pretax WACC?

Issuing debt provides incentives for managers to run the firm efficiently becaus?

Which of the following statements is FALSE?

Which of the following statements is FALSE?

A firm requires an investment of $40,000 and borrows $10,000 at 8%. If the return on equity is 20%, what is the firm's pretax WACC?

It is not correct to discount the cash flows of a levered firm with the cost of equity of the unlevered firm because

What are the issues in determining the present value (PV) of financial distress?

When investors use leverage in their own portfolios to adjust the leverage choice made by the firm,it is referred to as

What considerations should managers have while deciding on their capital structure?

Use the information for the question(s) below. Luther is a successful logistical services firm that currently has $5 billion in cash. Luther has decided to use this cash to repurchase shares from its investors and has already announced the share repurchase plan. Currently Luther is an all-equity firm with 1.25 billion shares outstanding. Luther's shares are currently trading at $20 per share. -Assume that in addition to 1.25 billion ordinary shares outstanding, Luther has share options given to employees valued at $2 billion. After the repurchase how many shares will Luther have outstanding?

Which of the following statements is FALSE?

When a firm's investment decisions have different consequences for the value of equity and thevalue of debt, managers may take actions

Use next year's Cash Flow Forecast for Blank Company to answer the following questions: Demand Cash Flow Weak \ 25,000 Expected \ 35,000 Strong \ 45,000 -Suppose Blank Company has only one project, as forecast above, and an unlevered cost of equity of 8%. If the company uses no leverage, what is the expected return to equity holders?

Which of the following statements is FALSE?

$X = \frac { E } { E + D } r _ { E } + \frac { D } { E + D } r _ { D }$ can be used to calculate all of the following EXCEPT:

The probability of financial distress depends on th?

The optimal capital structure depends o?