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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- 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 highkindly help with these questions 3. MM hypothesis proposes that profit installment: a.has a positive effect on the estimation of firm b. adversely affects the estimation of a firm c. no affects the estimation of firm. d.none of these 4. Leftover hypothesis of profit is relevant just when: a. The expense of held income lower than the expense of obligation b. the expense of held income is higher than the expense of obligation c. the expense of held income is equivalent to the expense of obligationTrue 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.
- Which is a true statement Flotation cost must be considered with retained earnings Since taxes are required they are not a factor to investors The investor required rate of return is the firm's costs of capital O Debt has $0 marginal cost In general the after tax cost of debt is the most expensive component in the cost of capitalQ12.8 Under the residual income approach and the discounted cash flow approach to firm valuation, earnings and cash flows, respectively, are discounted using a firm's cost of equity. Discuss why the cost of equity is the appropriate discount rate to use to discount a firm's earnings and cash flows. Why is the cost of debt inappropriate to use to discount a firm's earnings or cash flows?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 firm
- What would be a reason a company would want to overstate income? A. to help nudge its stock price higher B. to lower its tax bill C. to show a decrease in overall profits D. none of the aboveWhich of the following is false regarding book and market values? Select one: O a. Financial managers should rely on book values, and not market values, when analyzing the firm's tax liability. O b. Book value is an accounting summary of value and is inferior to market value as a source of current information regarding the true value of the firm. c. Market value always exceeds book value. O d. The market value of fixed assets is often difficult to determine.How would each of the following scenarios affect a firm's cost of debt, r d (l - t), t=tax rate; its cost of equity, rs; and its WACC? Indicate with an increase (I), a decreease (D), or no change (N) whether the factor would raise, lower, or have an indeterminate effect on the item in question. Assume for each answer that other things are held constant, even though in some instances this would probably not be true. rd (1-t) rs WACC 4) The dividend payout ratio is increased. 5) The firm expands into a risky new area. 6) Investors become more risk-averse. 7) The firm is an electric utility with a large investment innuclear plants. Several states are considering a ban on nuclear power generation.
- How would each of the following scenarios affect a firm's cost of debt, r d (l - t), t=tax rate; its cost of equity, rs; and its WACC? Indicate with an increase (I), a decreease (D), or no change (N) whether the factor would raise, lower, or have an indeterminate effect on the item in question. Assume for each answer that other things are held constant, even though in some instances this would probably not be true. 1) The corporate tax rate is lowered. 2) The Federal Reserve tightens credit. 3) The firm uses more debt; that is, it increases its debt ratioHow would each of the following scenarios affect a firm's cost of debt, r d (l - t), t=tax rate; its cost of equity, rs; and its WACC? Indicate with an increase (I), a decreease (D), or no change (N) whether the factor would raise, lower, or have an indeterminate effect on the item in question. Assume for each answer that other things are held constant, even though in some instances this would probably not be true. rd (1-t) rs WACC 1) The corporate tax rate is lowered. 2) The Federal Reserve tightens credit. 3) The firm uses more debt; that is, it increases its debt ratio 4) The dividend payout ratio is increased. 5) The firm expands into a risky new area. 6) Investors become more risk-averse. 7) The firm is an electric utility with a large investment innuclear plants. Several states are considering a ban on nuclear power generation.How would each of the following scenarios affect a firm's cost of debt, r d (l - t), t=tax rate; its cost of equity, rs; and its WACC? Indicate with an increase (I), a decreease (D), or no change (N) whether the factor would raise, lower, or have an indeterminate effect on the item in question. Assume for each answer that other things are held constant, even though in some instances this would probably not be true. rd (1-t) rs WACC 5) The firm expands into a risky new area. 6) Investors become more risk-averse. 7) The firm is an electric utility with a large investment innuclear plants. Several states are considering a ban on nuclear power generation.
