Unformatted text preview: firms different? How are they similar?
11–8 What is the major benefit of debt financing? How does it affect the firm’s
cost of debt?
11–9 What are business risk and financial risk? How does each of them influence the firm’s capital structure decisions?
11–10 Briefly describe the agency problem that exists between owners and
lenders. How do lenders cause firms to incur agency costs to resolve this
11–11 How does asymmetric information affect the firm’s capital structure decisions? How do the firm’s financing actions give investors signals that
reflect management’s view of stock value?
11–12 How do the cost of debt, the cost of equity, and the weighted average cost
of capital (WACC) behave as the firm’s financial leverage increases from
zero? Where is the optimal capital structure? What is its relationship to
the firm’s value at that point? LG5 EBIT–EPS approach
An approach for selecting the
capital structure that maximizes
earnings per share (EPS) over the
expected range of earnings
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This document was uploaded on 03/30/2014.
- Spring '14