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1、文档可能无法思考全面，请浏览后下载! Chapter 17Capital Structure: Limits to the Use of Debt Multiple Choice Questions1.The explicit costs, such as the legal expenses, associated with corporate default are classified as _ costs.A.flotationB.beta conversionC.direct bankruptcyD.indirect bankruptcyE.unlevered2.The costs
2、of avoiding a bankruptcy filing by a financially distressed firm are classified as _ costs.A.flotationB.direct bankruptcyC.indirect bankruptcyD.financial solvencyE.capital structure3.The explicit and implicit costs associated with corporate default are referred to as the _ costs of a firm.A.flotatio
3、nB.default betaC.direct bankruptcyD.indirect bankruptcyE.financial distress66 / 694.Indirect costs of financial distress:A.effectively limit the amount of equity a firm issues.B.serve as an incentive to increase the financial leverage of a firm.C.include direct costs such as legal and accounting fee
4、s.D.tend to increase as the debt-equity ratio decreases.E.include the costs incurred by a firm as it tries to avoid seeking bankruptcy protection.5.The legal proceeding for liquidating or reorganizing a firm operating in default is called a:A.tender offer.B.bankruptcy.C.merger.D.takeover.E.proxy fig
5、ht.6.The value of a firm is maximized when the:A.cost of equity is maximized.B.tax rate is zero.C.levered cost of capital is maximized.D.weighted average cost of capital is minimized.E.debt-equity ratio is minimized.7.The optimal capital structure has been achieved when the:A.debt-equity ratio is eq
6、ual to 1.B.weight of equity is equal to the weight of debt.C.cost of equity is maximized given a pre-tax cost of debt.D.debt-equity ratio is such that the cost of debt exceeds the cost of equity.E.debt-equity ratio selected results in the lowest possible weighed average cost of capital.8.In a world
7、with taxes and financial distress, when a firm is operating with the optimal capital structure:I. the debt-equity ratio will also be optimal.II. the weighted average cost of capital will be at its minimal point.III. the required return on assets will be at its maximum point.IV. the increased benefit
8、 from additional debt is equal to the increased bankruptcy costs of that debt.A.I and IV onlyB.II and III onlyC.I and II onlyD.II, III, and IV onlyE.I, II, and IV only9.The optimal capital structure will tend to include more debt for firms with:A.the highest depreciation deductions.B.the lowest marg
9、inal tax rate.C.substantial tax shields from other sources.D.lower probability of financial distress.E.less taxable income.10.The optimal capital structure of a firm _ the marketed claims and _ the nonmarketed claims against the cash flows of the firm.A.minimizes; minimizesB.minimizes; maximizesC.ma
10、ximizes; minimizesD.maximizes; maximizesE.equates; (leave blank)11.The optimal capital structure:A.will be the same for all firms in the same industry.B.will remain constant over time unless the firm makes an acquisition.C.of a firm will vary over time as taxes and market conditions change.D.places
11、more emphasis on the operations of a firm rather than the financing of a firm.E.is unaffected by changes in the financial markets.12.The basic lesson of MM theory is that the value of a firm is dependent upon the:A.capital structure of the firm.B.total cash flows of the firm.C.percentage of a firm t
12、o which the bondholders have a claim.D.tax claim placed on the firm by the government.E.size of the stockholders claims on the firm.13.Corporations in the U.S. tend to:A.minimize taxes.B.underutilize debt.C.rely less on equity financing than they should.D.have extremely high debt-equity ratios.E.rel
13、y more heavily on bonds than stocks as the major source of financing.14.In general, the capital structures used by U.S. firms:A.tend to overweigh debt in relation to equity.B.are easily explained in terms of earnings volatility.C.are easily explained by analyzing the types of assets owned by the var
14、ious firms.D.tend to be those which maximize the use of the firms available tax shelters.E.vary significantly across industries.15.The MM theory with taxes implies that firms should issue maximum debt. In practice, this is not true because:A.debt is more risky than equity.B.bankruptcy is a disadvant
15、age to debt.C.firms will incur large agency costs of short term debt by issuing long term debt.D.Both A and B.E.Both B and C.16.Although the use of debt provides tax benefits to the firm, debt also puts pressure on the firm to:A.meet interest and principal payments which, if not met, can put the com
16、pany into financial distress.B.make dividend payments which if not met can put the company into financial distress.C.meet both interest and dividend payments which when met increase the firm cash flow.D.meet increased tax payments thereby increasing firm value.E.None of the above.17.Given realistic
17、estimates of the probability and cost of bankruptcy, the future costs of a possible bankruptcy are borne by:A.all investors in the firm.B.debtholders only because if default occurs interest and principal payments are not made.C.shareholders because debtholders will pay less for the debt providing le
18、ss cash for the shareholders.D.management because if the firm defaults they will lose their jobs.E.None of the above.18.Conflicts of interest between stockholders and bondholders are known as:A.trustee costs.B.financial distress costs.C.dealer costs.D.agency costs.E.underwriting costs.19.One of the
19、indirect costs of bankruptcy is the incentive for managers to take large risks. When following this strategy:A.the firm will rank all projects and take the project which results in the highest expected value of the firm.B.bondholders expropriate value from stockholders by selecting high risk project
20、s.C.stockholders expropriate value from bondholders by selecting high risk projects.D.the firm will always take the low risk project.E.Both A and B.20.One of the indirect costs to bankruptcy is the incentive toward underinvestment. Following this strategy may result in:A.the firm always choosing pro
21、jects with the positive NPVs.B.the firm turning down positive NPV projects that it would clearly accept in an all equity firm.C.stockholders contributing the full amount of the investment, but both stockholders and bondholders sharing in the benefits of the project.D.Both A and C.E.Both B and C.21.W
22、hich of the following is true?A.A firm with low anticipated profit will likely take on a high level of debt.B.A successful firm will probably take on zero debt.C.Rational firms raise debt levels when profits are expected to decline.D.Rational investors are likely to infer a higher firm value from a
23、zero debt level.E.Investors will generally view an increase in debt as a positive sign for the firms value.22.Studies have found that firms with high proportions of intangible assets are likely to use _ debt compared with firms with low proportions of intangible assets.A.moreB.the same amount ofC.le
24、ssD.either more or the same amount ofE.any amount of debt23.What three factors are important to consider in determining a target debt to equity ratio?A.Taxes, asset types, and pecking order and financial slackB.Asset types, uncertainty of operating income, and pecking order and financial slackC.Taxe
25、s, financial slack and pecking order, and uncertainty of operating incomeD.Taxes, asset types, and uncertainty of operating incomeE.None of the above.24.An exchange may offer:A.allow customers a 30 day money-back guarantee on the firms product.B.allow customers a 90 day warranty on the firms product
26、 from defects.C.allow bondholders to exchange some debt for stock.D.allow stockholders to exchange some of their stock for debt.E.Both C and D.25.Which of the following is not empirically true when formulating capital structure policy?A.Some firms use no debt.B.Most corporations have low debt-asset
27、ratios.C.There are no differences in the capital-structure of different industries.D.Debt levels across industries vary widely.E.Debt ratios in most countries are considerably less than 100%.26.When shareholders pursue selfish strategies such as taking large risks or paying excessive dividends, thes
28、e will result in:A.no action by debtholders since these are equity holder concerns.B.positive agency costs, as bondholders impose various restrictions and covenants which will diminish firm value.C.investments of the same risk class that the firm is in.D.undertaking scale enhancing projects.E.lower
29、agency costs, as shareholders have more control over the firms assets.27.Indirect costs of bankruptcy are born principally by:A.bondholders.B.stockholders.C.managers.D.the federal government.E.the firms suppliers.28.The value of a firm in financial distress is diminished if the firm:A.is declared ba
30、nkrupt and proceeds to be liquidated.B.is declared insolvent and undergoes financial reorganization.C.is a partnership.D.Both A and C.E.Both A and B.29.Covenants restricting the use of leasing and additional borrowings primarily protect:A.the equityholders from added risk of default.B.the debtholder
31、s from the added risk of dilution of their claims.C.the debtholders from the transfer of assets.D.the management from having to pay agency costs.E.None of the above.30.If a firm issues debt but writes protective and restrictive covenants into the loan contract, then the firms debt may be issued at a
32、 _ interest rate compared with otherwise similar debt.A.significantly higherB.slightly higherC.equalD.lowerE.Either A or B31.When graphing firm value against debt levels, the debt level that maximizes the value of the firm is the level where:A.the increase in the present value of distress costs from
33、 an additional dollar of debt is greater than the increase in the present value of the debt tax shield.B.the increase in the present value of distress costs from an additional dollar of debt is equal to the increase in the present value of the debt tax shield.C.the increase in the present value of d
34、istress costs from an additional dollar of debt is less than the increase of the present value of the debt tax shield.D.distress costs as well as debt tax shields are zero.E.distress costs as well as debt tax shields are maximized.32.When firms issue more debt, the tax shield on debt _, the agency c
35、osts on debt (i.e., costs of financial distress) _, and the agency costs on equity _.A.increases; increase; increaseB.decreases; decrease; decreaseC.increases; increase; decreaseD.decreases; decrease; increaseE.increases; decrease; decrease33.The free cash flow hypothesis states:A.that firms with gr
36、eater free cash flow will pay more in dividends reducing the risk of financial distress.B.that firms with greater free cash flow should issue new equity to force managers to minimize wasting resources and to work harder.C.that issuing debt requires interest and principal payments reducing the potent
37、ial of management to waste resources.D.Both A and C.E.Both B and C.34.Issuing debt instead of new equity in a closely held firm more likely:A.causes the owner-manager to work less hard and shirk their duties as they have less capital at risk.B.causes the owner-manager to consume more perquisites bec
38、ause the cost is passed to the debtholders.C.causes both more shirking and perquisite consumption since the government provides a tax shield on debt.D.causes agency costs to fall as owner-managers do not need to worry about other shareholders.E.causes the owner-manager to reduce shirking and perquis
39、ite consumption as the excess cash flow must be used to meet debt payments.35.The pecking order states how financing should be raised. In order to avoid asymmetric information problems and misinterpretation of whether management is sending a signal on security overvaluation, the firms first rule is
40、to:A.finance with internally generated funds.B.always issue debt then the market wont know when management thinks the security is overvalued.C.issue new equity first.D.issue debt first.E.None of the above.36.Growth opportunities _ the _ of debt financing.A.increase; advantageB.decrease; advantageC.d
41、ecrease; disadvantageD.Both A and CE.None of the above37.Which of the following industries would tend to have the highest leverage?A.DrugsB.ComputerC.PaperD.ElectronicsE.Biological products38.The introduction of personal taxes may reveal a disadvantage to the use of debt if the:A.personal tax rate o
42、n the distribution of income to stockholders is less than the personal tax rate on interest income.B.personal tax rate on the distribution of income to stockholders is greater than the personal tax rate on interest income.C.personal tax rate on the distribution of income to stockholders is equal to
43、the personal tax rate on interest income.D.personal tax rate on interest income is zero.E.None of the above.39.In Millers model, when the quantity (1 - Tc)(1 - Ts) = (1 - Tb), then:A.the firm should hold no debt.B.the value of the levered firm is greater than the value of the unlevered firm.C.the ta
44、x shield on debt is exactly offset by higher personal taxes paid on interest income.D.the tax shield on debt is exactly offset by higher levels of dividends.E.the tax shield on debt is exactly offset by higher capital gains.40.In a Miller equilibrium, what type of investments do high tax bracket inv
45、estors tend to hold?A.BondsB.StocksC.DebenturesD.Both stocks and bonds.E.Neither stocks nor bonds.41.The TrunkLine Company will earn $60 in one year if it does well. The debtholders are promised payments of $35 in one year if the firm does well. If the firm does poorly, expected earnings in one year
46、 will be $30 and the repayment will be $20 because of the dead weight cost of bankruptcy. The probability of the firm performing poorly or well is 50%. If bondholders are fully aware of these costs what will they pay for the debt? The interest rate on the bonds is 10%.A.$25.00B.$27.50C.$29.55D.$32.50E.$35.0042.The TrunkLine Company debtholders are promised payments of $35 if the firm does well, but will receive only $20 if the firm does poorly. Bondholders are willing to pay $25. The promised ret