Exam 13: Capital Structure Concepts

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%.

Perfect capital markets imply the following:

The objective of capital structure management is to find the capital mix that leads to

The Modigliani-Miller theory that the value of the firm is independent of its capital structure is based on a(n) ____ process.

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

Studies of capital structure changes have found that actions that increase leverage have generally been associated with ____ stock returns and actions that decrease leverage are associated with ____ stock returns.

The managerial implications of capital structure theory include all of the following except:

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

With an optimal capital structure

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

Financial leverage benefits shareholders when the

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.

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%?

The optimal capital structure is a function of ____.