7. Capital structure theory Let's Play..Cash for Questions! Imagine you are a contestant on a popular television quiz show, Cash for Questions. You are thrilled that the category is Capital Structure Concepts," because you just learned about the theory and practical consequences associated with corporate financing decisions in your business finance class There are five questions in this category, and the host, Gavin Greenbacks, will give you the answer to each question in each of the following boxes. Remember, you must phrase your response in the form of a question and select the correct answer from the dropdown list. Good Luck! Disclaimer: You won't actually receive any money if you answer the questions correctly. Question 1: $100 Under the U.S. tax code, corporations are notWhat is/are allowed to deduct these payments made to suppliers of financial capital. Question 2: $200 Other things held constant, this is the nature of the relationship between a firm's earnings volatility and bankruptcy risk. Question 3: $300 According to signaling theory, firms with favorable investment opportunities are more likely to rely on this form of financing to fund their new projects. What is Question 4: $400 This capital structure theory balances the tax benefits associated with the use of debt and equity financing against the bankruptcy costs associated with these funds. What is Question 5: $500 In general, the price of a corporation's outstanding common shares react in this manner when the firm's management announces a new offering of common stock. What is You are now in the final round of the game. This is the Show-Off round. This question has three correct answers, and each will earn you $1,000. Select the three correct responses from those provided to complete the question. Show-Off Round: $1,000 Minimize the amount of debt in the firm's capital structure so the firm will be able to borrow money at a reasonable rate when good investment opportunities arise. Pay its excess cash flows to the shareholders in the form of higher dividends. Funnel excess cash flows back to the shareholders through stock repurchases. Distribute excess funds to the firm's bondholders by paying more interest expense than it is legally obligated to pay. Which of the following are ways a firm can reduce cash flows to prevent managers from wastefully spending excess cash flows? Check all that apply. Increase the amount of debt in the firm's target capital structure in the hope that higher debt-service requirements will force managers to be more disciplined 7. Capital structure theory Let's Play..Cash for Questions! Imagine you are a contestant on a popular television quiz show, Cash for Questions. You are thrilled that the category is Capital Structure Concepts," because you just learned about the theory and practical consequences associated with corporate financing decisions in your business finance class There are five questions in this category, and the host, Gavin Greenbacks, will give you the answer to each question in each of the following boxes. Remember, you must phrase your response in the form of a question and select the correct answer from the dropdown list. Good Luck! Disclaimer: You won't actually receive any money if you answer the questions correctly. Question 1: $100 Under the U.S. tax code, corporations are notWhat is/are allowed to deduct these payments made to suppliers of financial capital. Question 2: $200 Other things held constant, this is the nature of the relationship between a firm's earnings volatility and bankruptcy risk. Question 3: $300 According to signaling theory, firms with favorable investment opportunities are more likely to rely on this form of financing to fund their new projects. What is Question 4: $400 This capital structure theory balances the tax benefits associated with the use of debt and equity financing against the bankruptcy costs associated with these funds. What is Question 5: $500 In general, the price of a corporation's outstanding common shares react in this manner when the firm's management announces a new offering of common stock. What is You are now in the final round of the game. This is the Show-Off round. This question has three correct answers, and each will earn you $1,000. Select the three correct responses from those provided to complete the question. Show-Off Round: $1,000 Minimize the amount of debt in the firm's capital structure so the firm will be able to borrow money at a reasonable rate when good investment opportunities arise. Pay its excess cash flows to the shareholders in the form of higher dividends. Funnel excess cash flows back to the shareholders through stock repurchases. Distribute excess funds to the firm's bondholders by paying more interest expense than it is legally obligated to pay. Which of the following are ways a firm can reduce cash flows to prevent managers from wastefully spending excess cash flows? Check all that apply. Increase the amount of debt in the firm's target capital structure in the hope that higher debt-service requirements will force managers to be more disciplined