FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 12: Designing an Optimal Capital Structure

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 1

Multiple Choice

Review LaterAdd Note

Review Later

Pinnacle Financial Management projects that earnings per share for Valley Imports Inc.will increase from the current $1.75 per share to $2.00 next year.If Pinnacle recommends a P/E ratio of 12.5 for Valley Imports,what is the recommended forward looking price for the firm?

A) $21.88 per share
B) $25.00 per share
C) $23.44 per share
D) $6.25 per share

E) None of the above
F) A) and C)

Correct Answer

verified

Show Answer

Question 2

True/False

Review LaterAdd Note

Review Later

Issuing debt rather than equity will automatically increase a firm's EPS and EBIT.

A) True
B) False

Correct Answer

verified

False

Question 3

Multiple Choice

Review LaterAdd Note

Consider a corporation that was originally 100% family owned.Which of the following statements is TRUE?

Equity provides more financial flexibility for a firm than debt.

A point to keep in mind is that financial managers should consider taking less financial risk when operating risk is high,but may consider taking more financial risk when operating risk is low.

Published betas are typically levered betas not unlevered betas if the firm in question has debt in its capital structure.

Define Dual Class Shares of stock.Why would a firm consider issuing dual classes of stock? Are dual shares common in the United States? In what type of industry are they found?

Optimal capital structure "first" criteria suggests that flexibility should be ________ and that the best way to obtain that is with ________ levels of debt and ________ levels of equity.

The interest coverage ratio is equal to:

Big City Lumber Inc.has a levered beta of 1.70,a debt-equity ratio of 0.40,and a tax rate of 25%.What is the value of the firm's unlevered beta?

The Global Financial Crisis or Great Recession is generally recognized as the greatest financial crisis since the Great Depression of the 1930s.

Managers need to take into account a number of perspectives when assessing the "first" criteria.The ________ focuses primarily on balancing the tax shield benefits with financial distress costs.

Creative Industries Inc.is looking to finance a new project with either debt or equity.The firm anticipates that its breakeven EPS-EBIT point is when EBIT reaches $3,000,000.If the projected EBIT are $3,500,000 for the foreseeable future,then to maximize EPS the firm should issue:

________ took place in financial markets during the Great Recession because large financial institutions took excess risks to realize abnormal positive returns in the housing market while they were simultaneously protected from abnormal losses by being "too-big-to-fail."

Plastic Products Inc.has a levered beta of 1.30,a debt-equity ratio of 0.50,and a tax rate of 40%.What is the value of the firm's unlevered beta?

If a firm takes on ________ it may be downgraded by rating agencies,resulting in ________ interest payments.

Issuing equity automatically hurts existing shareholders.

In a recent comprehensive survey,corporate CFOs were asked why they did NOT use more equity in their capital structure.Which of the following choices was NOT cited by 50% or more of the CFOs responding to the survey?

________ refers to the ease with which a firm is able to tap-in to sources of capital.

White's World Wide Delivery Inc.has an unlevered beta = 1.25,a debt-equity ratio of 0.30,a tax rate of 0.20,and a levered beta = 1.55.If the firm increased the debt-equity ratio to 50%,what would be the impact on the levered beta?