|
LOS g: Describe the objective of the capital structure decision.
Q1. Which of the following is likely to encourage a firm to increase the amount of debt in its capital structure?
A) The personal tax rate increases.
B) The firm's earnings become more volatile.
C) The corporate tax rate increases.
Q2. The firm's target capital structure is consistent with which of the following?
A) Minimum risk.
B) Maximum earnings per share (EPS).
C) Minimum weighted average cost of capital (WACC).
Q3. A firm’s capital structure affects:
A) return on equity but not default risk.
B) default risk but not return on equity.
C) return on equity and default risk.
Q4. Jayco, Inc. currently has a D/A ratio of 33.33% but feels its optimal D/A ratio should be 16.67%. Sales are currently $750,000, and the total assets turnover (Sales / Assets) is 7.5. If Jayco needs to raise $100,000 to expand, how should the expansion be financed so as to produce the desired debt ratio? Finance it with:
A) 25% debt, 75% equity.
B) all equity.
C) all debt.
Q5. A firm's optimal debt ratio:
A) minimizes risk.
B) is the firm's target capital structure.
C) maximizes return.
Q6. Which of the following statements about a firm's capital structure is least accurate?
A) The degree of total leverage equals the degree of operating leverage times the degree of financial leverage.
B) The firm's optimal capital structure occurs where the firm's earnings per share is maximized.
C) Other things held constant, if you increase a firm's financial leverage you will increase the firm's beta coefficient.
Q7. The capital structure that:
A) minimizes the required rate on equity maximizes the stock price.
B) maximizes the stock price minimizes the weighted average cost of capital.
C) maximizes expected EPS maximizes the price per share of common stock.
Q8. Which one of the following statements about a firm's capital structure is most accurate? The optimal capital structure:
A) maximizes expected earnings per share (EPS), maximizes the price per share of common stock.
B) minimizes the required rate on equity, maximizes the stock price.
C) maximizes the stock price, minimizes the weighted average cost of capital (WACC).
Q9. Which of the following firms is most likely to utilize additional debt the next time it raises capital? The firm:
A) in a high tax bracket.
B) that has many new fixed assets.
C) firm that has experienced significant losses in recent years.
Q10. Which of the following firms is likely to have a higher debt ratio?
A) Bath & Books, which produces toiletries and other consumer staples that are in demand regardless of economic conditions.
B) Critter Care, which has a low debt rating due to the prior financial mismanagement by the chief executive officer.
C) Egg Harbor Furs, which serves as a wholesaler of fine furs and garments. | 
发表于 2009-3-4 13:09
| 
