Exam 13: Capital Structure Concepts

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

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

Two prominent finance researchers (Modigliani and Miller) showed that

Due to both financial distress and agency costs, a firm should have a capital structure that

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

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

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

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

____ represents the permanent sources of the firm's financing.

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

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 amount of permanent short-term debt, long-term debt, preferred stock, and common stock used to finance a firm defines the firm's

What is the annual tax shield to a firm that has a capital structure consisting of $100 million of 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%?

As more debt is added to the capital structure of a firm, the cost of debt capital

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

The use of fixed-cost financing sources is referred to as the use of

The tax deductibility of interest payments provides the firm with a:

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.

____ 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.

Agency costs