Feldspar Inc. is considering the capital structure for a new division. Management has been given the following cost information:$\begin{array}{lll}\text { Debt/assets } &\mathrm{k}_{d} \text { (Cost of Debt) }& \mathrm{k}_{\mathrm{e}} \text { (Cost of Equity) }\\ .30 & .10 & .125 \\ .40 & .105 & .13 \\ .50 & .11 & .135 \\ .60 & .117 & .142 \\ .70 & .13 & .155 \end{array}$ ? Based on this information, what capital structure (debt/asset ratio) should management accept? Assume the marginal tax rate is 40%.

A) 40% has lowest cost of capital B) 50% has lowest cost of capital C) 60% has lowest cost of capital D) 70% has lowest cost of capital A) 40% has lowest cost of capital B) 50% has lowest cost of capital C) 60% has lowest cost of capital D) 70% has lowest cost of capital

Exam 15: Capital Structure Concepts

Explore all topics

RoTek has a capital structure of $300,000 in equity and $300,000 in perpetual debt. The firm's cost of equity is 14% and its cost of debt is 9%. If the firm has an expected, perpetual net operating income of $120,000 and a marginal tax rate of 40%, what is the market value of RoTek? Assume all net income is paid out as dividends.

(Multiple Choice)

4.9/5

(44)

Question 61

The amount of debt in a firm's optimal capital structure is often referred to as the firm's ____.

(Multiple Choice)

5.0/5

(43)

Question 62

Feldspar Inc. is considering the capital structure for a new division. Management has been given the following cost information: Debt/assets (Cost of Debt) (Cost of Equity) .30 .10 .125 .40 .105 .13 .50 .11 .135 .60 .117 .142 .70 .13 .155 ? Based on this information, what capital structure (debt/asset ratio) should management accept? Assume the marginal tax rate is 40%.

(Multiple Choice)

4.9/5

(35)

Question 63

A firm with highly liquid assets plus unused debt capacity is said to have ____.

(Multiple Choice)

4.8/5

(39)

Question 64

Per the "pecking order theory," firms prefer to issue securities first and then issue securities as a last resort.

(Multiple Choice)

5.0/5

(38)

Question 65

The capital structure decision attempts to minimize ____, which maximizes the value of the firm.

(Multiple Choice)

4.9/5

(31)

Question 66

As the proportion of debt in the capital structure increases, investors require a return and the value of existing debt will .

(Multiple Choice)

4.8/5

(36)

Question 67

Calculate the market value of a firm with total assets of $60 million and a net worth of $35 million. The firm's cost of equity is 15%, and the cost of perpetual debt is 8%. The firm has a perpetual net operating income (EBIT) of $4.5 million and a marginal tax rate of 35%.

(Multiple Choice)

5.0/5

(28)

Question 68

What is the present value of the tax shield to a firm that has a capital structure consisting of $100 million of perpetual debt and $180 million of equity, if the average interest rate on debt is 9%, the return on equity is 13%, and the marginal tax rate is 40%?

(Multiple Choice)

4.9/5

(34)

Question 69

The management of Graphicopy is trying to determine how much debt they should have in their capital structure. If they sell $500,000 in perpetual bonds with a 9% coupon, what would be the present value of the tax shield? Assume the marginal tax rate is 35%.

(Multiple Choice)

4.7/5

(29)

Question 70

Two prominent finance researchers (Modigliani and Miller) showed that the firm's ____.

(Multiple Choice)

4.9/5

(35)

Question 71

The use of fixed cost sources of funds, such as debt and preferred stock, affect a firm's ____.

(Multiple Choice)

4.8/5

(41)

Question 72

Showing 61 - 72 of 72

The amount of debt in a firm's optimal capital structure is often referred to as the firm's ____.

A firm with highly liquid assets plus unused debt capacity is said to have ____.

Per the "pecking order theory," firms prefer to issue securities first and then issue securities as a last resort.

The capital structure decision attempts to minimize ____, which maximizes the value of the firm.

As the proportion of debt in the capital structure increases, investors require a return and the value of existing debt will .

Calculate the market value of a firm with total assets of $60 million and a net worth of $35 million. The firm's cost of equity is 15%, and the cost of perpetual debt is 8%. The firm has a perpetual net operating income (EBIT) of $4.5 million and a marginal tax rate of 35%.

What is the present value of the tax shield to a firm that has a capital structure consisting of $100 million of perpetual debt and $180 million of equity, if the average interest rate on debt is 9%, the return on equity is 13%, and the marginal tax rate is 40%?

The management of Graphicopy is trying to determine how much debt they should have in their capital structure. If they sell $500,000 in perpetual bonds with a 9% coupon, what would be the present value of the tax shield? Assume the marginal tax rate is 35%.

Two prominent finance researchers (Modigliani and Miller) showed that the firm's ____.

The use of fixed cost sources of funds, such as debt and preferred stock, affect a firm's ____.

The Role and Objective of Financial Management

The Domestic and International Financial Marketplace

Evaluation of Financial Performance

Financial Planning and Forecasting

The Time Value of Money

Continuous Compounding and Discounting

Fixed Income Securities: Characteristics and Valuation

Common Stock: Characteristics, Valuation, and Issuance

Analysis of Risk and Return

Capital Budgeting and Cash Flow Analysis

Mutually Exclusive Investments Having Unequal Lives

Capital Budgeting: Decision Criteria and Real Option Considerations

Capital Budgeting and Risk

The Cost of Capital

Breakeven Analysis

Capital Structure Management in Practice

Dividend Policy

Working Capital Policy and Short-Term Financing

The Management of Cash and Marketable Securities

The Management of Accounts Receivable and Inventories

Lease and Intermediate Term Financing

Financing With Derivatives

Bond Refunding Analysis

Risk Management

International Financial Management

Corporate Restructuring

Filters

Exam 15: Capital Structure Concepts

The amount of debt in a firm's optimal capital structure is often referred to as the firm's ____.

A firm with highly liquid assets plus unused debt capacity is said to have ____.

Per the "pecking order theory," firms prefer to issue ____ securities first and then issue ____ securities as a last resort.

The capital structure decision attempts to minimize ____, which maximizes the value of the firm.

As the proportion of debt in the capital structure increases, investors require a ____ return and the value of existing debt will ____.

Calculate the market value of a firm with total assets of $60 million and a net worth of $35 million. The firm's cost of equity is 15%, and the cost of perpetual debt is 8%. The firm has a perpetual net operating income (EBIT) of $4.5 million and a marginal tax rate of 35%.

What is the present value of the tax shield to a firm that has a capital structure consisting of $100 million of perpetual debt and $180 million of equity, if the average interest rate on debt is 9%, the return on equity is 13%, and the marginal tax rate is 40%?

The management of Graphicopy is trying to determine how much debt they should have in their capital structure. If they sell $500,000 in perpetual bonds with a 9% coupon, what would be the present value of the tax shield? Assume the marginal tax rate is 35%.

Two prominent finance researchers (Modigliani and Miller) showed that the firm's ____.

The use of fixed cost sources of funds, such as debt and preferred stock, affect a firm's ____.

The Role and Objective of Financial Management

The Domestic and International Financial Marketplace

Evaluation of Financial Performance

Financial Planning and Forecasting

The Time Value of Money

Continuous Compounding and Discounting

Fixed Income Securities: Characteristics and Valuation

Common Stock: Characteristics, Valuation, and Issuance

Analysis of Risk and Return

Capital Budgeting and Cash Flow Analysis

Mutually Exclusive Investments Having Unequal Lives

Capital Budgeting: Decision Criteria and Real Option Considerations

Capital Budgeting and Risk

The Cost of Capital

Breakeven Analysis

Capital Structure Management in Practice

Dividend Policy

Working Capital Policy and Short-Term Financing

The Management of Cash and Marketable Securities

The Management of Accounts Receivable and Inventories

Lease and Intermediate Term Financing

Financing With Derivatives

Bond Refunding Analysis

Risk Management

International Financial Management

Corporate Restructuring

Filters

Per the "pecking order theory," firms prefer to issue securities first and then issue securities as a last resort.

As the proportion of debt in the capital structure increases, investors require a return and the value of existing debt will .