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Fundamentals of Business Finance Chapter 12, 13, 15, 17 Exam 4 Questions and Answers 2024
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Fundamentals of Business Finance Chapter 12, 13, 15, 17 Exam 4
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Fundamentals of Business FinanceChapter 12, 13, 15, 17 Exam 4
Which of the following statements is most correct concerning a corporation's optimal
capital structure? - answerThe optimal capital structure occurs at the point where the
market value of the levered firm is maximized.
Optimal capital structure is: - answerthe mix of permanent sources of funds used by the
firm in a manner that will maximize the company's common stock price.
Which of the following would not be a part of a firm's capital structure? - answerShort-
term notes payable
The optimal capital structure is the funds mix that will - answerminimize the firm's
composite cost of capital.
The break-even point is equal to - answerfixed costs divided by (sales price per unit -
variable cost per unit).
All of the following will make the break-even point increase, other things equal, except -
answerthe number of units sold for the year decreased.
A firm's optimal capital structure occurs where? - answerWACC is minimized, and stock
price is maximized.
Which of the following is a fixed cost? - answerinsurance
Which of the following would be considered a fixed cost in a manufacturing setting? -
answerDepreciation
Which of the following statements about financial leverage is true? - answerFinancial
leverage is the responsiveness of the firm's EPS to fluctuations in EBIT.
Ames Drilling Corp. reported that its sales and EBIT increased by 10%, but its EPS
increased by 30%. The much larger change in earnings per share could be the result of
- answerhigh financial leverage.
If a firm has no operating leverage and no financial leverage, then a 10% increase in
sales will have what effect on EPS? - answerEPS will increase by 10%
, Kocher Steel typically achieves one of three production levels in any given year: 8
million pounds of steel, 10 million pounds of steel, or 16 million pounds of steel. In
tracking some of its costs, Kocher Steel's controller discovered one cost that was $10
per pound at a production level of 8 million pounds, $8 per pound at a production level
of 10 million pounds, and $5 per pound at a production level of 16 million pounds. This
is an example of a - answerfixed cost.
Moline Manufacturing Corporation reported the following items: Sales = $6,000,000;
Variable Costs of Production = $1,500,000; Variable Selling and Administrative
Expenses = $550,000; Fixed Costs = $1,350,000; EBIT = $2,600,000; and the Marginal
Tax Rate =35%. Moline's break-even point in sales dollars is: - answer$2,050,633
Sweet Tooth Bakery bakes and sells pies. Sweet Tooth has annual fixed costs of
$880,000 and a variable cost per pie of $7.50. Each pie sells for $15.50 each. The firm
expects to sell 500,000 pies annually. What is the break-even point in pies? -
answer110,000
As production levels increase, - answerfixed costs per unit decrease and variable costs
per unit stay the same.
When deciding upon how much debt financing to employ, most practitioners would cite
which of the following as the most important influence on the level of the debt ratio? -
answerability to adequately meet financing charges
Which of the following would be considered a variable cost in a manufacturing setting? -
answerDirect labor
According to the moderate view of capital costs and financial leverage, as the use of
debt financing increases: - answerthere is an optimal level of debt financing.
The Modigliani and Miller hypothesis does not work in the "real world" because -
answerboth interest expense is tax deductible, providing an advantage to debt financing
and higher levels of debt increase the likelihood of bankruptcy, and bankruptcy has real
costs for any corporation.
Basic tools of capital-structure management include: - answerboth EBIT-EPS analysis
and comparative leverage ratios.
The market value of a leveraged firm is equal to the market value of an unleveraged
firm - answerplus the present value of tax shields minus the present value of financial
distress costs minus the present value of agency costs.
One component of a firm's financial structure which is not a component of its capital
structure is: - answeraccounts payable.
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