Fundamentals of Corporate Finance Study Set 23

By definition, which of the following costs are included in the term "financial distress costs"? I.direct bankruptcy costs II.indirect bankruptcy costs III.direct costs related to being financially distressed, but not bankrupt IV.indirect costs related to being financially distressed, but not bankrupt

You have computed the break-even point between a levered and an unlevered capital structure.Assume there are no taxes.At the break-even level, the:

The costs incurred by a business in an effort to avoid bankruptcy are classified as _____ costs.

The absolute priority rule determines:

AA Tours is comparing two capital structures to determine how to best finance its operations.The first option consists of all equity financing.The second option is based on a debt-equity ratio of 0.45.What should AA Tours do if its expected earnings before interest and taxes (EBIT) are less than the break-even level? Assume there are no taxes.

The proposition that a firm borrows up to the point where the marginal benefit of the interest tax shield derived from increased debt is just equal to the marginal expense of the resulting increase in financial distress costs is called:

Which one of the following is the equity risk related to a firm's capital structure policy?

Edwards Farm Products was unable to meet its financial obligations and was forced into using legal proceedings to restructure itself so that it could continue as a viable business.The process this firm underwent is known as a:

Homemade leverage is:

Butter & Jelly reduced its taxes last year by $350 by increasing its interest expense by $1,000.Which of the following terms is used to describe this tax savings?

A business firm ceases to exist as a going concern as a result of which one of the following?

Which one of the following is the legal proceeding under which an insolvent firm can be reorganized?

Which one of the following states that the value of a firm is unrelated to the firm's capital structure?

The value of a firm is maximized when the:

The explicit costs, such as legal and administrative expenses, associated with corporate default are classified as _____ costs.

The unlevered cost of capital refers to the cost of capital for a(n):

Which one of the following states that a firm's cost of equity capital is directly and proportionally related to the firm's capital structure?

Which one of the following is the equity risk that is most related to the daily operations of a firm?

The optimal capital structure has been achieved when the:

A firm should select the capital structure that: