Tut07 - b ability of a firm to self-determine the amount of leverage they prefer in their capital structure c amount of debt a small firm arranges

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FINS 5514 Week 7: Capital Structure 1. Which one of the following supports the statement that it is totally irrelevant how a firm arranges its financing? a. M&M Proposition I without taxes b. M&M Proposition I with taxes c. M&M Proposition II without taxes d. M&M Proposition II with taxes 2. _____ risk determines the required return on assets. a. Business b. Total c. Financial d. Unsystematic 3. Which one of the following is indicative of an optimal capital structure? a. maximum tax shield b. maximum debt-equity ratio c. minimum cost of capital d. minimum firm value 4. Homemade leverage refers to the: a. ability of individual investors to borrow and lend money on their own.
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Unformatted text preview: b. ability of a firm to self-determine the amount of leverage they prefer in their capital structure. c. amount of debt a small firm arranges with their local bank. d. ratio of cash holdings of an individual as compared to their equity holdings. 5. Capital structure is irrelevant under MM with perfect capital markets as the value of the operating cash flows is unaffected by capital structure decisions. In practice, cash flows are not independent of these decisions. Explain why this could occur for a) a company which generates large free cash flow b) a company which is highly levered. Chapter 17 Questions : 4, 8, 12, 16, 17...
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This note was uploaded on 04/11/2011 for the course FINS 5514 taught by Professor No during the Three '11 term at University of New South Wales.

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Tut07 - b ability of a firm to self-determine the amount of leverage they prefer in their capital structure c amount of debt a small firm arranges

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