Question
1.) Which of the following is not shown by research on capital structure decisions? a. Firms place a lower value on bankruptcy costs than theory
1.) Which of the following is not shown by research on capital structure decisions?
a. | Firms place a lower value on bankruptcy costs than theory suggests they should. | |
b. | Firms value financial flexibility. | |
c. | Firms pay a large amount of attention to the debt levels of other firms in the industry. | |
d. | Firms worry about the dilution of share value when new equity is issued. |
2.) The cost of capital approach to estimating the optimal capital structure is considered unconstrained, which of the following may place a constraint on the analysis that prevents the firm from minimizing the cost of capital?
a. | A decrease in the bond rating below investment grade at the optimal level. | |
b. | An increase in the cost of preferred stock at the optimal level. | |
c. | An increase in the cost of equity at the optimal level. | |
d. | An increase in the cost of debt at the optimal level. |
3.) Which of the following is not a factor that helps determine if the firm should increase the debt level to the optimal level quickly of slowly?
a. | The need for financial flexibility. | |
b. | The likelihood of a takeover. | |
c. | The difference between the current level of debt and the optimal level of debt. | |
d. | The degree of confidence in the estimate of the optimal level. |
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