Which of the following would likely encourage a firm to increase the debt in its capital structure? a. The corporate tax rate increases. b. The personal tax rate increases. c. Due to market changes, the firm’s assets become less liquid. d. Changes in the bankruptcy code make bankruptcy less costly to the firm. e. The firm’s sales and earnings become more volatile.

Q: Which of the following statements is correct?   a. Companies may pay too high a price in a large…

A: companies may pay a high price in a large open market to repurchase its shares because it needs to…

Q: Which of the following statements is FALSE? As debt increases, the risk associated with bankruptcy…

A: Source of raising capital include: Equity financing Debt financing Loans from financial…

Q: Which one of the following factors might cause a firm to increase the debt in its financial…

A: Interest paid on debt is a tax deductible expense, which means that while ascertaining the tax…

Q: Which of the following can lead to an increase in the net working capital of a firm?   A. A…

A: Net working capital  = Current Assets - Current Liabilities

Q: Which of the following is true regarding a company assuming more debt?   Select one: a. Assuming…

A: WHEN A COMPANY BORROWS MONEY TO BE PAID IN FUTURE WITH INTEREST IT IS KNOWN AS DEBT . MORE OF DEBT…

Q: In general, as a company increases the amount of short-term financing relative to long-term…

A: Explanation :   An increase in the proportion of short-term financing will not affect a company’s…

Q: Which one of the following is not an effect of an increase in leverage     Managers have fewer…

A: Increases in leverage means introducing more debt into capital structure.

Q: A new accounting standard requires a firm to accrue major new liabilities for employee pensions and…

A: Following are some of the accounting policy choices that could reduce the likelihood of technical…

Q: . The relationship between a firm's capital structure and other company attributes As a firm…

A: As a firm takes on more debt, its probability of bankruptcy increases. Other factors held constant,…

Q: Which of the following is NOT related to (or contributes to) business risk? Remember that a…

A: Business risk refers to a company's or organization's vulnerability to factors that could reduce…

Q: Which of the following is not a financing decision?   A   Should the firm borrow money from a…

A: Financing decisions- It is concerned with the quantum of funds to be raised from the various…

Q: The MM irrelevance capital structure theory proved that a firm’s value is unaffected by its capital…

A: The MM irrelevance capital structure theory states that a firm’s valuation is unaffected by its…

Q: pany borrows, the higher will be its tax shields, therefore a company will always prefer to issue…

A: WACC is weighted average cost of capital after tax.

Q: financial leverage affect stockholders' control position? d) How does the tax structure influence a…

A: How does the tax structure influence a firm's willingness to finance with debt? It allows a company…

Q: What affect would an increase in the cost of bankruptcy have on the capital structure of a firm?…

A: Bankruptcy cost is associated with the cost of financing of debt. Higher bankruptcy cost indicates…

Q: The use of financial leverage by the firm has a potential impact on which of the following?…

A: Financial leverage refers to the use of debt capital in the capital structure of the company. The…

Q: The disadvantages of debt to the corporation include all but which of the following? Group of…

A: The company can raise funds through different sources of finance such as debt funds, equity funds,…

Q: Based upon the empirical evidence, state whether the following statements are true or false, and…

A: Since you have posted a question with multiple sub-parts, we will solve the first three subparts for…

Q: The following statements were included in a report prepared by a financial manager of a company to…

A: Soft capital rationing occurs where a company reduces the amount of money available for investment…

Q: Explain what happens to the firm’s cost of equity, cost of debt, and cost of capital when the firm…

A: Modigliani and Miller's approach (M&M) states that the valuation of a firm is independent of the…

Q: Which of the following is not one of the things that manager can do to reduce the capital ratio…

A: Paying out higher dividends to stockholders.

Q: Identify and explain each of the if it encourage a firm to increase or decrease debt in its capital…

A: Answer a: If there is an increase in the corporate tax rate, it would encourage a firm to increase…

Q: Which one of the following is NOT an implication of market efficiency for corporate finance?

A: Since you have posted multiple independent questions in the same request, we will solve the first…

Q: Holding everything else constant, which of the following statements is TRUE? * If amendments to the…

A: Interest on debt is a tax free expense, thus companies always take after tax cost debt in to…

Q: Which of the following situations would compel the management of a company to embark on a capital…

A: The share capital is the amount of capital raised by the company through the issue of shares.

Q: Debt overhang occurs when: 1. A company is so indebted that it has little incentive to invest as…

A: Meaning of debt overhang: It is a situation in which a high amount of debt is there in the company…

Q: Which of the following is a disadvantage of long-term debt as a means of company financing? Group…

A: Funds are very important and necessary for smooth running of a business organization. A business has…

Q: In times of crisis companies are often seen to be paying stable dividends. The question however is,…

A: Introduction: Dividend is a part of profits which is distributed among its shareholders. In the…

Q: Suppose that a new government is elected and it changes the law applying to firms to: • Allow…

A: The trade-off theory of capital structure proposes that a corporation balances costs and advantages…

Q: How can a company expand itself out of business, and how can a finance management prevent this from…

A: There are various methods that are been used by the company in order to expand its business. A good…

Q: What is the primary reason for the higher cost of finance from shareholders than debt? a.…

A: A company can raise its finances in the form of debt or equity or a mix of debt and equity. Debt is…

Q: Explain what happens to the firm’s cost of equity, cost of debt, and cost of capital when the firm…

A: The Modigliani and Miller approach is a capital structure theory that advocates that the value of…

Q: Which of the following statements is CORRECT? * A company can use its retained earnings without…

A: Optimal capital structure: The optimal capital structure can be simply defined as the combination of…

Q: Which of the following is most consistent with using debt to reduce agency costs or conflicts?…

A: Statement number 4 is consistent with using debt to reduce agency costs or conflicts.

Q: Which of the following would reduce a firm's WACC after tax? a. A firm invests in an average-risk…

A: WACC = (weight age of equity * cost of equity ) + [(weight age of debt * cost of debt)*(1-tax rate)]…

Q: The independence hypothesis is one of the theories explaining a firm's capital structure. Which of…

A: Capital Structure is a mix of source of external funds particularly combination of debt and equity…

Q: Generally speaking, the cost of debt is cheaper than the cost of equity. Does it imply that a firm…

A: Cost of debt is the charge which a fir must pay to the bond holder for borrowing the money.  This…

Q: What affect would an increase in the costs of bankruptcy have on the capital structure of a firm?…

A: Bankruptcy costs are the costs associated with the company defaulting on their debts and costs of…

Q: Which of the following is NOT an effect of the possibility of bankruptcy? O reduce the possible…

A: Interest rate on debt are fixed in nature but decided with rating of company. The interest rate are…