A) A firm receives the greatest benefit from debt financing when its tax rate is relatively low.
B) A debt-equity ratio of 1 is considered to be the optimal capital structure.
C) The costs of financial distress decrease the value of a firm.
D) The more debt a firm assumes, the greater the incentive to acquire even more debt until such time as the firm is financed with 100 percent debt.
E) At the optimal level of debt a firm also optimizes its tax shield on debt.
G) B) and E)
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A) $13.30
B) $5.50
C) $19.35
D) $11.50
E) $12.33
G) B) and C)
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A) -15.5 percent
B) -15.2 percent
C) -15.0 percent
D) -16.1 percent
E) -14.8 percent
G) A) and C)
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A) $0.16
B) $0.83
C) $0.55
D) $0.07
E) $0.03
G) A) and D)
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A) M&M Proposition I without taxes
B) M&M Proposition II without taxes
C) M&M Proposition I with taxes
D) Static theory of capital structure
E) No theory suggests this.
G) C) and D)
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A) 25.74 percent
B) 26.06 percent
C) 26.71 percent
D) 26.22 percent
E) 26.57 percent
G) A) and B)
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A) $649,207
B) $753,571
C) $656,411
D) $719,307
E) $633,190
G) C) and D)
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A) $542,576
B) $540,909
C) $575,909
D) $584,243
E) $592,576
G) All of the above
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A) $187,613
B) $189,919
C) $206,750
D) $229,507
E) $203,682
G) A) and E)
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A) Indirect bankruptcy costs
B) Direct bankruptcy costs
C) Static theory cost
D) Optimal capital structure cost
E) Reorganization costs
G) B) and E)
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A) $138,000
B) $118,750
C) $84,000
D) $1
E) $125,000
G) A) and C)
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A) Borrow money and buy an additional 53 shares
B) Borrow money and buy an additional 56 shares
C) Sell 48 shares and loan out the proceeds
D) Sell 56 shares and loan out the proceeds
E) Sell 53 shares and loan out the proceeds
G) A) and D)
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A) 11.76 percent
B) 11.29 percent
C) 12.93 percent
D) 12.47 percent
E) 10.20 percent
G) A) and B)
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A) maintains a constant debt-equity ratio.
B) has an all-equity structure.
C) is fixed in terms of its assets and operations.
D) pays no taxes.
E) is operating at the point where financial distress costs are eliminated.
G) B) and D)
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A) $820,000
B) $540,000
C) $750,000
D) $571,000
E) $729,000
G) All of the above
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A) $283,140
B) $316,030
C) $4,053,400
D) $3,960,000
E) $4,420,000
G) A) and E)
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A) whenever EBIT is less than $428,000.
B) only when EBIT is $428,000.
C) whenever EBIT exceeds $428,000.
D) only if the debt is decreased by $428,000.
E) only if the debt is increased by $428,000.
G) C) and D)
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A) A prepack is a plan of liquidation used to distribute a firm's assets.
B) Bankruptcy courts have "cram-down" powers.
C) The absolute priority rule must be strictly followed in all bankruptcy proceedings.
D) Creditors cannot force a firm into bankruptcy even though they might like to do so.
E) A reorganization plan can be approved only if the firm's creditors all agree with the plan.
G) None of the above
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A) $1,375,000
B) $1,945,000
C) $1,600,000
D) $1,635,000
E) $1,875,000
G) C) and D)
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A) $768,285
B) $826,875
C) $839,002
D) $8,160,000
E) $9,450,000
G) A) and B)
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