Exam 13: Capital Structure Concepts

Seduak has estimated the costs of debt and equity capital for various proportions of debt in its capital structure: Based on these estimates, determine Seduak's optimal capital structure.

Financial leverage benefits shareholders when the

Technico has determined that its optimal capital structure is 40% debt, at which point its weighted cost of capital, ka, is 13.7%.Due to financial problems, the firm has decided to raise the proportion of debt to 50%, which will increase its weighted cost of capital to 14.4%.What is the effect on the stock price of Technico? The current dividend is $1.60 and the long-term growth rate of dividends is expected to be 8.5%.

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

There are many factors that influence a firm's business risk.List them.

In determining the capital structure for an international firm, the managerial objective is to

Which of the following statements is true regarding the relationship between the firm's cost of debt and its capital structure (as measured by the debt ratio)?

The process of simultaneously buying and selling the same or equivalent securities in different markets to take advantage of price differences and make a profit is called:

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 percent coupon, what would be the present value of the tax shield? Assume the marginal tax rate is 35%.

The optimal capital structure of a firm is a function of the .

The optimal capital structure is a function of .

What is the pecking order theory with regard to managerial preferences for financing alternatives?

refers to the argument that officers and managers have access to information about the expected future earnings of the firm that is not available to outside investors.

How do signaling effects impact the firm's capital structure decision?

What is the annual tax shield to a firm that has total assets of $80 million and a net worth of $55 million, if the average interest rate on debt is 8.5%, the average return on equity is 14%, and the marginal tax rate is 35%?