Exam 13: Capital Structure Concepts

Feldspar Inc.is considering the capital structure for a new division.Management has been given the following cost information: Based on this information, what capital structure (debt/asset ratio) should management accept? Assume the marginal tax rate is 40%.

The greater the variability of costs, the greater the business risk of the firm.This is reflected in the:

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

List the factors that determine the specific capital structure for a multinational firm.

A firm accepts the risk of fixed-cost financing is to:

Holding all other things equal, as the relative amount of debt in the capital structure of the firm increases, the cost of equity capital will

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

The less a firm's business risk, the the amount of that will be used in the optimal capital structure, holding constant all other relevant factors.

There are many benefits to a leveraged buy-out.However, the benefits from LBOs come with significant costs. Explain the down-side of LBOs.

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

Explain how industry effects need to be considered in the capital structure decision.

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

What is the market value of Barings, a firm with total assets of $100 million and $30 million in perpetual debt in its capital structure? Barings' cost of equity is 15% and its cost of debt is 10%.Expected perpetual net operating income (EBIT) will be $17 million and the marginal tax rate is 40%.

In considering the arbitrage process in perfect capital markets with no income taxes, the market value of a firm is ____.

Biotec has estimated the costs of debt and equity capital for various proportions of debt in its capital structure: If Biotec pays a current dividend of $1.00 and expects dividends to grow at a constant rate of 7%, what is Biotec's stock price if it obtains its optimal capital structure?

One of the primary assumptions of capital structure analysis is that the level and variability of is not expected to change as changes in capital structure are contemplated.

Arbitrage transactions are:

The optimal capital structure is determined by several factors including all of the following except:

The tax deductibility of the interest payments on corporate debt is known as:

In analyzing the value of the firm as a function of capital structure, the present value of the tax shield benefit is offset by the present value of the expected , resulting in an interior optimal capital structure.