True False If a competitor (more heavily leveraged than your company) experiences a positive response to an increase in leverage, this suggests that additional debt to your capital structure may decrease your share price.

True False An industry leader is more likely to have a more stable earnings pattern and therefore have less debt capacity than other companies in the industry.

True False When comparing your firm to a competitor, it is important to evaluate differences in systematic risk (assuming there are some).

True False Many companies rely on investment bankers to judge the market response because they generally have a good understanding of the bond rating process and continual contact with security analysts.

True False Tax changes combined with transaction cost may cause the market to be in disequalibrium.

True False When conducting a pro-forma analysis, it is necessary to only predict the income statement to calculate the projected financing needs of the organization.

True False The holding of reserves, and the sale of assets are two available resources that may offset negative cash flow.

True False Nonfinancial items should not be considered when determining the optimal financial structure.

True False The lessee uses the assets while the lessor owns the asset.

True False Beta measures diversifiable or nonsystematic risk.

True False The IRS has guidelines for determining if a lease is really an installment sale

True False The ability to shift the risk of obsolescence, serviceability and residual value to the lessee is typical.

True False Leases are often used by companies to remove the cost of assets and the corresponding debt from the balance sheet.

True False Typically, government reimbursement techniques favor ownership over leasing.

True False Vertical integration may involve buying either a customer or a supplier.

True False Horizontal integration involves the purchase of an unrelated business.

True False Information asymmetry could exist where an acquiring firm has a better information set than the market in general.

True False An acquisition is often easier than a proxy battle, but with an acquisition the acquirer must share a greater proportion of the benefits of any value creation.

True False The correlation of compensation with the size of an organization is one reason managers might "do a merger" even if it decreases the wealth of the acquiring companies.

True False Hostile take-over attempts are hostile to the target shareholders but friendly to the target's management.

True False Ignoring taxes -- if you do not believe the synergistic benefits will occur, you should push for a stock for stock merger.