QUESTION 2 Which of the following statements is false O A positive net working capital is desirable O A firm's liability can be measured by finding the difference between assets and shareholder's equity.
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- 1. Which of the following is not a component used in calculating the cost of capital? A. The cost of short-term debt. B. The cost of common stock. C. The cost of long-term debt. D. The cost of retained earnings. 2. Which of the following statements about cost of capital is false? A. The overall cost of capital is the minimum rate a firm must earn on all investments to cover capital costs. B. The overall cost of capital is the cost of the firm's equity capital at which the market value of the firm will remain unchanged. C. Cost of capital is based on what the company pays for its capital, not the return earned on the capital employed. D. The overall cost of capital is the weighted average cost of the various debt and equity components in a firm's capital structure.A/ Value of a firm is equal to the value of debt plus value of equity. B/ Asset based valuation method says value of a firm is the value of equity excluding debt. select one: 1/ Agree with b but not A 2/ Agree with a but no b 3/ Agree with both A and B 4/ Disagree with both A and B1. Net income or loss generally arises from transactions with owners who provide net capital to the firm. True or False
- M-M theroy with perfect market suggests that divident payment: A.It dependes on the company's capital structure and retained earnings B.Has a positive impact on the value of a firm C.Has a negative impact on the value of a firm D.Has no impact on the value of a firmwhich one is correct please confirm? QUESTION 3 A firm is considering the purchase of assets that will increase its fixed operating costs. The firm should decrease the proportion of ____ it employs in its capital structure if it wants to maintain its existing degree of combined leverage. a. common stock b. common stock and warrants c. warrants d. debtWhich of the following is NOT a conclusion drawn from M&M's Propositions 1 and 2? a. Shareholder's required return rises with leverage. b. The WACC does not change as capital structure change. c. Firm value is determined by the left hand of the balance sheet the firm's assets, and the cash flow generated by them. d. The WACC is determined by the riskiness of the company's business (assets). e. A firm can change its market value by splitting its cash flows into different streams.
- True of False? Contributed capital decreases when the company has a net loss. If your answer is “False”, then explain (in one sentence) why the statement is false.b) 1. Capital structure can be defined as the mix of a firm’s permanent long-term financing represented by debt, preferred stock, and common stock equity. True b. False 2. Optimum capital structure is proportionate of equity and debt a company adopts to maximize its wealth and market value and minimize its cost of capital True b. False 3. Minimizing the Weighted Average Cost of Capital (WACC) is NOT one way to optimize for the lowest cost mix of financing. True b. False1. How is it possible for a firm to be profitable and still go bankrupt? Select one: a. The firm has positive net income but has failed to generate cash from operations. b. Earnings have increased more rapidly than sales. c. Sales have not improved even though credit policies have been eased. d. Net income has been adjusted for inflation. 2. Which ratio or ratios measure the overall efficiency of the firm in managing its investment in assets and in generating return to shareholders? Select one: a. Gross profit margin and net profit margin. b. Return on investment and return on equity. c. Total asset turnover and operating profit margin. d. Return on investment. 3. What is the first step in an analysis of financial statements? Select one: a. Specify the objectives of the analysis. b. Do a common size analysis. c. Check references containing financial information. d. Check the auditor’s report. 4. What information does the auditor’s report contain? Select one: a. The results of…
- Which of the following statements is FALSE? Question content area bottom Part 1 A. Growth rate of the firm is higher, it is more optimal to have a higher level of debt relative to equity in the firm capital structure. B. Growth will affect the optimal leverage ratio even if the firm has positive earnings. C. When examining tax, the optimal debt level is proportional to its current earnings. D. The more unsure we are of EBIT the more chance that interest will exceed EBIT, if the interest expense is high1. Capital structure is important as it helps maintains a proper and adequate level of capital, which as result enables the firm to earn high profits and provide more dividends to the shareholders. True False 2. Capital Structure refers to the kinds of proportionate securities that make up capitalization through different long-term sources like equities, preference shares, debenture, long-term loans, and retained earnings. True False 3. Optimum capital estimation is necessary. But the formation of capital structure is highly important True False1. Is a solvent firm necessarily liquid? Why? 2. Explain the difficulties for determining the cost of capital in the short-term decision-making. 3. Explain the difference between the financial statement approach and the valuation approach. Which approach is superior for making short-term financial decisions? Why?