Ch.15 Quiz

Instructions
Read the questions carefully.

This assessment is worth 100 points.

  1. The firm's capital structure refers to:   (10 points)

    a.  
    b.  
    c.  
    d.  
    e.  

  2. The effect of financial leverage depends on the operating earnings of the company. Which if the following is not true?   (10 points)

    a.  
    b.  
    c.  
    d.  
    e.  

  3. When comparing levered vs. unlevered capital structures, leverage works to increase EPS for high levels of EBIT because:   (10 points)

    a.  
    b.  
    c.  
    d.  
    e.  

  4. Financial leverage impacts the performance of the firm by:   (10 points)

    a.  
    b.  
    c.  
    d.  
    e.  

  5. The stock price of a firm under MM Proposition without corporate taxes is:   (10 points)

    a.  
    b.  
    c.  
    d.  
    e.  

  6. In a world of no corporate taxes if the use of leverage does not change the value of the levered firm relative to the unlevered firm this is known as:   (10 points)

    a.  
    b.  
    c.  
    d.  
    e.  

  7. A firm has a debt-to-equity ratio of 1. Its cost of equity is 16%, and its cost of debt is 8%. If there are no taxes or other imperfections, what would be its cost of equity if the debt-to-equity ratio were 0?   (10 points)

    a.  
    b.  
    c.  
    d.  
    e.  

  8. A firm has a debt-to-equity ratio of 1.20. If it had no debt, its cost of equity would be 15%. Its cost of debt is 10%. What is its cost of equity if there are no taxes or other imperfections?   (10 points)

    a.  
    b.  
    c.  
    d.  
    e.  

  9. The Boston Firm is unlevered with assets of $30 million and EBIT of $6 million. If the firm's tax rate is 34%, calculate both its after-tax cash flow and its value given a risk adjusted discount rate of 12%.   (10 points)

    a.  
    b.  
    c.  
    d.  
    e.  

  10. A firm has a debt-to-equity ratio of 1. Its cost of equity is 16%, and its cost of debt is 8%. If the corporate tax rate is .25, what would its cost of equity be if the debt-to-equity ratio were 0?   (10 points)

    a.  
    b.  
    c.  
    d.  
    e.  



Portions copyright ©2005 The McGraw-Hill Companies.
Any use is subject to the Terms of Use and Privacy Policy.
McGraw-Hill Higher Education is one of the many fine businesses of The McGraw-Hill Companies.