Which of the following makes this a true statement? In this slightly more realistic world with corporate taxes, managers can: Multiple Choice maximize the firm's value by taking on as much equity as possible. maximize the firm's value by taking on as much debt as possible. minimize the firm's value by taking on as much debt as possible. maximize the firm's value by financing only with debt.

Which of the following makes this a true statement? In this slightly more realistic world with corporate taxes, managers can: Multiple Choice maximize the firm's value by taking on as much equity as possible. maximize the firm's value by taking on as much debt as possible. minimize the firm's value by taking on as much debt as possible. maximize the firm's value by financing only with debt.

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter7: Introduction To Financial Statement Analysis

Section: Chapter Questions

Problem 10Q

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Similar questions

Which of the following is a valid reason for a firm not to use as much debt as it can raise? Group of answer choices The use of more debt is expected to result in an increase in the firmʹs cost of capital when everything is considered More debt will increase the firmʹs riskiness All of them are valid reasons for a firm to use less debt than might be available The use of more debt is expected to result in a lower price/earnings ratio
Which of the following actions should a manager take to optimize the firm's value? * Changing the capital structure if and only if the firm's value rises. Changing the capital structure if and only if the firm's value rises to the advantage of inside management Changing the capital structure if and only if the firm's value increases solely to the benefit of debtholders. Changing the capital structure if and only if the firm's value increases, even if it lowers stockholders' value. Changing the capital structure if and only if the firm's value grows and stockholder equity remains stable.
Which of the following about optimal capital structure is incorrect? Optimal capital structure is the mixed of debt and equity capital that minimizes the firm’s weighted average cost of capital A company that follows the pecking order theory will use external financing thru debt after exhausting all the possible financing thru equity The management empire-building theory views high interest payments as to prevent management from unreasonable spending A company can take advantage of its high corporate tax rate as tax shield, under the trade-off theory
Which of the following would reduce a firm's WACC after tax? a. A firm invests in an average-risk project using equity, rather than debt financing. b. A supermarket chain decides to establish hardware stores which increases its systematic risk. c. A firm issues shares and uses the proceeds to pay off a bank loan. d. A firm issues bonds and uses the proceeds to repurchase stock. e. A firm significantly improves its operating cost control to boost profits.
Consider the effect that corporate profit taxes have on investing. Look back at Figure 15.4. Suppose that the r line is the rate of return a firm earns before taxes. If corporate profit taxes are imposed, the firm’s after-tax returns will be lower (and the higher the tax rate, the lower the after-tax returns). If the firm’s decisions about R&D spending are based on comparing after-tax returns with the interest-rate cost of funds, how will increased corporate profit taxes affect R&D spending? Does this effect modify your views on corporate profit taxes? Discuss.
Which of the following statements is CORRECT? * Assume a corporation has less debt than what is ideal. Increasing the use of debt to reach its optimum capital structure would lower the cost of both debt and equity financing. There is no reason to believe that changes in the personal tax rate will have an effect on firms' capital structure decisions. Assuming everything else is equal, a firm with high business risk is more likely to increase the use of financial leverage than a firm with low business risk. In general, a company with low operating leverage has a small percentage of its total costs in the form of fixed costs. If a company's after-tax cost of equity exceeds its after-tax cost of debt, it can still lower its WACC by using more debt.
In the case of a perfect capital market, according to Modigliani and Miller Proposition I and II, what is the optimal capitalstructure? When you introduce taxes, how can leverage alter the incentives of managers?
See below for some statements on how financial managers can create value for their firms. Which of the following statement(s) is (are) TRUE? Select one or more alternatives: If capital markets are inefficient at times, financial managers could create value through financing decisions. Capital markets are less efficient than goods markets; this is why the primary source of creating value is through clever financing decisions. Managers can create value for a firm's stakeholders through improving its ESG performance. The "ESG" in ESG investing stands for environmental, social and governance. Managers can create value for a firm's stakeholders through improving its ESG performance. The "ESG" in ESG investing stands for environmental, sustainability and governance.
Which of the following statements is most correct? Group of answer choices The optimal capital structure maximizes the WACC. None of these. Increasing the amount of debt in a firm's capital structure is likely to increase the cost of both debt and equity financing. If the after-tax cost of equity financing exceeds the after-tax cost of debt financing, firms are always able to reduce their WACC by increasing the amount of debt in their capital structure.
Which of the following is most consistent with using debt to reduce agency costs or conflicts? Question 11 options: Increasing debt reduces a firm’s business risk The interest paid on debt reduces taxable income and income taxes The interest paid on debt reduces cash that management of a firm might otherwise waste or use poorly The issuance of debt helps firms increase their credit rating
Suppose your firm’s credit rating is B-, and outlook is negative, not easy to raise finance through debt from the capital market. According to the capital structure theories we examined, benefits by having debt since the interest expense is deductible for tax purposes, creating an interest tax shield. The interest tax shield, on the other hand, increases in value the higher the coupon rate on the debt and the higher the tax rate. Shouldn't the firm then choose to raise as much debt as possible or pay as high a coupon rate as possible given the low credit rating? As CFO, what kinds of concerns you have to issue as much debt as possible, and high coupon rate increase the benefits of tax shields? (300 words limit with bulletin points to answer the above questions)
7. The reason firms care about the amount of debt they use is because a. There are tax benefits to debt, so capital structure can affect the value of the firm b. Firms don't care about their amount of debt c. There are tax benefits of equity, so using debt can replace valuable equity d. None of the above 8. When an economy has a risk-free asset, all risk-averse investors should invest in either the risk-free asset or the highest Sharpe-ratio risky asset (or both) a. True b. False c. Too little information to tell d. None of the above 9. The CAPM equation (Security Market Line) is a useful tool when trying to identify a company's a. Weight Average Cost of Capital b. Required Return on Equity c. Expected Return on Equity d. All of the above