Corporate Finance Study Set 12

Business

Quiz 16 :

Capital Structure: Basic Concepts

Quiz 16 :

Capital Structure: Basic Concepts

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You own 25% of Unique Vacations, Inc. You have decided to retire and want to sell your shares in this closely held, all equity firm. The other shareholders have agreed to have the firm borrow $1.5 million to purchase your 1,000 shares of stock. What is the total value of this firm today if you ignore taxes?
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Answer:

E

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MM Proposition I with no tax supports the argument that:
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C

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Thompson & Thomson is an all equity firm that has 500,000 shares of stock outstanding. The company is in the process of borrowing $8 million at 9% interest to repurchase 200,000 shares of the outstanding stock. What is the value of this firm if you ignore taxes?
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Answer:

A

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The use of personal borrowing to change the overall amount of financial leverage to which an individual is exposed is called:
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A firm has debt of $5,000, equity of $16,000, a leveraged value of $8,900, a cost of debt of 8%, a cost of equity of 12%, and a tax rate of 34%. What is the firm's weighted average cost of capital?
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When comparing levered vs. unlevered capital structures, leverage works to increase EPS for high levels of EBIT because:
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A key assumption of MMs Proposition I (no taxes) is:
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A manager should attempt to maximize the value of the firm by:
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The effect of financial leverage depends on the operating earnings of the company. Which if the following is not true?
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The increase in risk to equity holders when financial leverage is introduced is evidenced by:
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In the absence of taxes, the capital structure chosen by a firm doesn't really matter because of:
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In an EPS- EBIT graphical relationship, the slope of the debt ray is steeper than the equity ray. The debt ray has a lower intercept because:
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The unlevered cost of capital is:
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A general rule for managers to follow is to set the firm's capital structure such that:
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The capital structure chosen by a firm doesn't really matter because of:
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The firm's capital structure refers to:
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In an EPS-EBIT graphical relationship, the debt ray and equity cross. At this point the equity and debt are:
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A levered firm is a company that:
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The Modigliani-Miller Proposition I without taxes states:
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Financial leverage impacts the performance of the firm by:
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