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Fin 701 - Exam 3 Questions and Answers
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  • FIN701
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  • FIN701

a firm should select the capital structure that - Answer-b- maximizes the value of the firm the value of a firm is maximized when the - Answer-d- weighted average cost of capital is minimized the optimal capital structure has been achieved when the - Answer-e- debt-equity ratio results in the...

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  • August 23, 2024
  • 6
  • 2024/2025
  • Exam (elaborations)
  • Questions & answers

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  • fin 701 exam 3 questions and answers
  • a firm should select the capital structure that

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  • FIN701
  • FIN701

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Fin 701 - Exam 3 Questions and Answers
a firm should select the capital structure that - Answer-b- maximizes the value of the
firm

the value of a firm is maximized when the - Answer-d- weighted average cost of capital
is minimized

the optimal capital structure has been achieved when the - Answer-e- debt-equity ratio
results in the lowest possible weighted average cost of capital

assume you are reviewing a graph that plots earnings per share (eps) against earnings
before interest and taxes (ebit). the steeper the slope of the plotted line the - Answer-d-
greater the sensitivity of eps to changes in ebit

you have computed the break-even point between a levered and unlevered capital
structure. ignore taxes. at the break-even level, the - Answer-a- company is earning just
enough to pay for the cost of the debt

a correct statement in relation to M&M Prospoition II, without taxes - Answer-c- the
required return on assets is equal to the weighted average cost of capital

the business risk of a company - Answer-d- has a positive relationship with the
company's cost of equity

what is the equity risk that is most related to the daily operations of a firm? - Answer-d-
business risk

financial risk is - Answer-d- dependent upon a company's capital structure

states that the value of a company is unrelated to the company's capital structure -
Answer-b- m&m proposition I, no tax

westover mills reduced its taxes last year by $210 by increasing its interest expense by
$1,000. which term is used to describe this tax savings? - Answer-a- interest tax shield

m&m proposition I with tax implies that the - Answer-a- weighted average cost of capital
decreases as the debt-equity ratio increases

the interest tax shield is a key reason why - Answer-c- the net cost of debt is generally
less than the cost of equity

the explicit costs, such as legal and admin expenses, associated with corporate default
are classified as __ costs - Answer-c- direct bankruptcy

, the costs incurred by a business in an effort to avoid bankruptcy are classified as __
costs - Answer-c- indirect bankruptcy

the proposition that a company borrows up to the point where the marginal benefit of the
interest tax shield derived from increased debt is just equal to the marginal expense of
the resulting increase in financial distress costs is called - Answer-a- the static theory of
capital structure

a marketed claim against the cash flows of a company - Answer-b- dividend payment to
shareholders

the optimal capital structure of a company - Answer-b- maximizes the value of that
company's marketed claims

a correct statement related to cash dividends - Answer-1b- a dividend is never a liability
of the issuer until it has been declared

united foods declared a dividend of $0.62 a share on Thursday, October 16. the
dividend will be paid on Monday, November 10, to shareholders of record on Friday,
October 31. What is the expected dividend date? - Answer-2b- Wednesday, October 28

bailey's decided on Friday, March 7, to pay a dividend of $0.28 a share on Monday,
April 7. The ex-dividend date is Tuesday, March 18. What is the date of record? -
Answer-3d- Thursday, March 20

Kate purchased 500 shares of fast deliveries stock on Wednesday, July 7. ted
purchased 100 shares of stock on Thursday, July 8. fast deliveries declared a dividend
on June 20 to shareholders of record on July 12 and payable august 1. which statement
concerning the dividend paid on august 1 is correct given this info? - Answer-d- both are
entitled

a $.45 quarterly cash payment paid by Jones & Co. to its shareholders in the normal
course of business becomes a liability of the company on the - Answer-5c- declaration
date

the ex-dividend date is defined as __ business day(s) prior to the date of record -
Answer-6b- 2

what date is used to determine the names of shareholders who will receive a dividend
payment? - Answer-7c- date of record

what type of dividend is considered to be a one-time event that will not be repeated? -
Answer-8d- special dividend

the fact that flotation costs can be significant is an argument for - Answer-9e-
maintaining a low dividend policy and rarely issuing extra dividends

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