Question
In making Capital Structure decisions, the overall objective is to: 1- minimize the total amount of dividends and interest the firm needs to pay 2-
In making Capital Structure decisions, the overall objective is to:
1- minimize the total amount of dividends and interest the firm needs to pay | |
2- maximize the tax deductions the firm receives for interest expense | |
3- improve cash flows as much as possible | |
4- minimize the firm's WACC |
Which of the below statements is true?
1- corporations cannot make dividend payments to both common and preferred shareholders during the same year | |
2- Debt is normally a less expensive form of capital than equity | |
3- both interest expense and dividend payments are tax deductible for the firm making them | |
4- Equity financing is permanent financing, while debt financing is temporary financing |
As a firm's debt increases, its _______________ also increases. This makes the firm more risky and tends to increase the firm's _____.
1- market value / expected return | |
2- expected return / expected dividend payout | |
3- leverage / beta | |
4- systematic risk / unsystematic risk |
A capital lease incurs tax deductible interest expense. An operating lease is not tax deductible.
True | |
False |
The only form of financing considered 'free' are the accounts payable and accrued expenses balances.
True | |
False |
The 'optimal' capital structure is the one under which the firm has roughly equal dollar amounts of equity financing and long-term debt financing.
True | |
False |
A type of financing that involves one corporation borrowing from another non-financial corporation is called:
1- an operating lease | |
2- a short term line of credit | |
3- commercial paper | |
4- preferred sharing |
Past the point where the optimal capital structure exists, adding debt to the capital structure:
1- results in higher interest rates for the firm, and higher leverage. The higher leverage results in a riskier firm with a higher cost of equity. | |
2- violates SEC regulations if the excess debt is considered permanent. | |
3- results in the excess debt's interest not being tax deductible | |
4- Reduces the firms cost of equity |
Under a capital lease, the firm is deemed to have purchased the equipment being leased, and to have financed the purchase with interest-bearing debt.
True | |
False |
All short-term debt is considered temporary financing.
True | |
False |
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