{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

test12 - Chapter 12-Capital Structure MULTIPLE CHOICE 1 The...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 12—Capital Structure MULTIPLE CHOICE 1. The uncertainty caused by the variability of a firm’s cash flows is called . . . a. financial risk b. business risk c. financial leverage d. none of the above ANS: B DIF: E REF: 12.2 The Modigliani & Miller Capital Structure Irrelevance Propositions 2. Which of the following is considered an indirect cost of bankruptcy? 3. Which of the following is considered a direct cost of bankruptcy? 4. A situation where shareholders refuse financing a “good” investment, because they think that only the bondholders will benefit will lead to . . . 5. The proposition that the market value of the firm is independent of its capital structure is called . . . a. M&M proposition I b. M&M proposition II c. the capital asset pricing model d. none of the above ANS: A DIF: E REF: 12.2 The Modigliani & Miller Capital Structure Irrelevance Propositions
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
NARRBEGIN: Bavarian Brew Bavarian Brew Bavarian Brew, an unlevered firm, has an expected EBIT of $500,000. The required return on assets for the firm’s assets is 10%. The company has 250,000 shares outstanding. The company is considering raising $1 million in debt with a required return of 6% and would use the proceeds to repurchase outstanding stock. NARREND 6. What is the value of Bavarian Brew before restructuring? Assume no corporate taxes. DIF: E REF: 12.2 The Modigliani & Miller Capital Structure Irrelevance Propositions NAR: Bavarian Brew 7. What is the value of Bavarian Brew before restructuring? Assume a corporate tax rate of 34%. DIF: E REF: 12.2 The Modigliani & Miller Capital Structure Irrelevance Propositions NAR: Bavarian Brew 8. What is the value of Bavarian Brew after restructuring. Assume no corporate taxes. DIF: E REF: 12.2 The Modigliani & Miller Capital Structure Irrelevance Propositions NAR: Bavarian Brew
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}