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LOS p: Discuss international differences in financial leverage and the implications for investment analysis.
Q1. Katherine Epler, a self-employed corporate finance consultant, is having a discussion with friends that are also in the corporate finance field. After talking about their families, the discussion turns to factors that tend to impact capital structure. During the course of the conversation, Epler makes two statements.
Statement 1: Favorable tax rates on dividend income relative to interest income will reduce the value of the tax shield provided by debt in the static trade-off theory of capital structure.
Statement 2: Evidence indicates that reductions in the net agency costs of equity tend to lead to lower financial leverage ratios.
With respect to Epler's statements:
A) both are incorrect.
B) both are correct.
C) only one is correct.
Q2. Katherine Epler, a self-employed corporate finance consultant, is conducting a seminar concerning differences in financial leverage across different countries. In her seminar, Epler makes the following statements:
Statement 1: Companies in developed countries tend to use less long-term debt when financing their operations compared with companies in emerging markets.
Statement 2: Companies operating in Japan tend to have a greater reliance on shorter term debt financing than companies operating in the United States.
With respect to Epler’s statements:
A) only one is correct.
B) both are correct.
C) both are incorrect.
Q3. The maturity structure for corporate debt is typically shorter in countries that have:
A) more liquid stock and bond markets.
B) low rates of GDP growth.
C) lower rates of inflation.
Q4. Financial leverage ratios tend to be to low in countries that have:
A) a large institutional investor presence.
B) a high reliance on the banking system for raising debt capital.
C) inefficient legal systems. | 
发表于 2009-3-4 14:14
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