E. None of the above 17. According to the Pecking Order Theory, a firm needing outside financing should first finance using A. Initial Public Offering of stock B. Seasoned Equity Offering of stock C. Seasoned Equity Offering of preferred stock D. Convertible preferred stock E. None of the above 18. According to the Market-Timing Model A. Firms issue equity when stock prices are high and debt when stock prices are low B. A firm's capital structure reflects the cumulative effects of past attempts to issue equity opportunistically C. Firms issue equity when stock prices are high and equity when stock prices are low D. Firms always adhere to a target debt equity ratio E. Both A and B 19. How could bankruptcy have no consequence for a firm's capital structure? A. If bankruptcy laws were rewritten to favor debtors B. If there were no direct or indirect costs to bankruptcy C. If Hillary had been elected president D. If bankruptcy represented a costly transfer to creditors E. None of the above 20. If a company has too little debt in its capital structure, then A. It is taking excessive interest expense deductions B. It has no non-debt tax shields C. It likely has too little equity D. It should increase its leverage E. None of the above 21. A firm's assets have a value of $20 million, the present value of its tax shields are 4 million, the present value of its bankruptcy costs are $3 million, and the present value of its agency costs are 5 million. Using the Trade-off model, what is the value of this leveraged firm? A. $16 million B. $32 million C. $22 million D. $8 million E. None of the above 22. What is "Asset Substitution"? A. Investing in a current asset instead of a long-term asset B. Investing in a foreign country rather than in the USA C. Investing in a risky asset rather than in a safe asset as promised D. Investing in futures contracts rather than forward contracts E. None of the above 22. What is "Asset Substitution? A. Investing in a current asset instead of a long-term asset B. Investing in a foreign country rather than in the USA C. Investing in a risky asset rather than in a safe asset as promised D. Investing in futures contracts rather than forward contracts E. None of the above 23. What is the "Signaling Theory"? A. Management will avoid using debt if they are confident about the company B. Management will pay extra taxes to the IRS just to show their liquidity C. Management will select its leverage level to show they are financially strong enough to handle high debe D. Management will avoid the use of debt tax shields E. None of the above 24. How do bankruptcy costs affect the capital structure decision? A. Induce firms to have lower leverage B. Induce firms to have higher leverage C. No effect on leverage D. Induce firms to issue less preferred stock E. None of the above 25. Qualkonk Corporation paid dividends of $2 per share and had earnings per share of $8 in 2016. It has debt tax shields of $5 per share. What is Qualkonk's dividend payout ratio? A.4 B. 0.4 C. 0.625 D. 0.25 E. None of the above 26. Megabub Corporation has 4 million shares outstanding and earned $48 million in 2016. It paid a total of $8 million in dividends during the year. What is Megabub's dividend payout ratio? Round your answer to the second decimal place A.0.17 B. 0.50 C. 2.00 D. 0.08 E. None of the above 27. Larchmount Manufacturing, Inc. had a dividend payout ratio of 40% in 2014. It earned $20 million that year and had 5 million shares outstanding. What is Larchmount's dividend payment per share for that year? A. 40% B. $1.60 C. $4 D. E. None of the above $0.25 E. None of the above 17. According to the Pecking Order Theory, a firm needing outside financing should first finance using A. Initial Public Offering of stock B. Seasoned Equity Offering of stock C. Seasoned Equity Offering of preferred stock D. Convertible preferred stock E. None of the above 18. According to the Market-Timing Model A. Firms issue equity when stock prices are high and debt when stock prices are low B. A firm's capital structure reflects the cumulative effects of past attempts to issue equity opportunistically C. Firms issue equity when stock prices are high and equity when stock prices are low D. Firms always adhere to a target debt equity ratio E. Both A and B 19. How could bankruptcy have no consequence for a firm's capital structure? A. If bankruptcy laws were rewritten to favor debtors B. If there were no direct or indirect costs to bankruptcy C. If Hillary had been elected president D. If bankruptcy represented a costly transfer to creditors E. None of the above 20. If a company has too little debt in its capital structure, then A. It is taking excessive interest expense deductions B. It has no non-debt tax shields C. It likely has too little equity D. It should increase its leverage E. None of the above 21. A firm's assets have a value of $20 million, the present value of its tax shields are 4 million, the present value of its bankruptcy costs are $3 million, and the present value of its agency costs are 5 million. Using the Trade-off model, what is the value of this leveraged firm? A. $16 million B. $32 million C. $22 million D. $8 million E. None of the above 22. What is "Asset Substitution"? A. Investing in a current asset instead of a long-term asset B. Investing in a foreign country rather than in the USA C. Investing in a risky asset rather than in a safe asset as promised D. Investing in futures contracts rather than forward contracts E. None of the above 22. What is "Asset Substitution? A. Investing in a current asset instead of a long-term asset B. Investing in a foreign country rather than in the USA C. Investing in a risky asset rather than in a safe asset as promised D. Investing in futures contracts rather than forward contracts E. None of the above 23. What is the "Signaling Theory"? A. Management will avoid using debt if they are confident about the company B. Management will pay extra taxes to the IRS just to show their liquidity C. Management will select its leverage level to show they are financially strong enough to handle high debe D. Management will avoid the use of debt tax shields E. None of the above 24. How do bankruptcy costs affect the capital structure decision? A. Induce firms to have lower leverage B. Induce firms to have higher leverage C. No effect on leverage D. Induce firms to issue less preferred stock E. None of the above 25. Qualkonk Corporation paid dividends of $2 per share and had earnings per share of $8 in 2016. It has debt tax shields of $5 per share. What is Qualkonk's dividend payout ratio? A.4 B. 0.4 C. 0.625 D. 0.25 E. None of the above 26. Megabub Corporation has 4 million shares outstanding and earned $48 million in 2016. It paid a total of $8 million in dividends during the year. What is Megabub's dividend payout ratio? Round your answer to the second decimal place A.0.17 B. 0.50 C. 2.00 D. 0.08 E. None of the above 27. Larchmount Manufacturing, Inc. had a dividend payout ratio of 40% in 2014. It earned $20 million that year and had 5 million shares outstanding. What is Larchmount's dividend payment per share for that year? A. 40% B. $1.60 C. $4 D. E. None of the above $0.25