Finance- Chapter 13

Which one of the following is minimized when the value of a firm is maximized?

B. WACC

Which one of the following is the equity risk arising from the daily operations of a firm?

Business risk

16. Assume you are comparing two firms that are identical in every aspect, except one is levered and one is unlevered. Which one of the following statements is correct regarding these two firms?

E. The unlevered firm will have higher EPS at relatively low levels of EBIT

Which one of the following terms is inclusive of both direct and indirect bankruptcy costs?

Financial distress costs

Which one of the following is the equity risk arising from the capital structure selected by a firm?

Financial risk

Which one of the following is an example of a direct bankruptcy cost

Incurring legal fees for the preparation of bankruptcy filings

Which one of the following terms refers to the termination of a firm as a going concern?

Liquidation

Greenwood Motels has filed a petition for bankruptcy but hopes to continue its operations both during and after the bankruptcy process. Which one of the following terms best applies to this situation?

Reorganization

Which one of the following statements is correct regarding bankruptcies post-2005?

Section 363 speeds up the bankruptcy process via a bidding process

Capital restructuring

changing the amount of leverage without changing the firm's assets

M& M Proposition II, without taxes, states that the:

cost of equity increases as a firm increases its debt-equity ratio.

The level of financial risk to which a firm is exposed is dependent on the firm's:

debt-equity ratio.

The use of borrowing by an individual to adjust his or her overall exposure to financial leverage is referred to as:

homemade leverage.

A prepack:

is the joint filing of both a bankruptcy filing and a creditor-approved reorganization plan

Capital structure

percent of debt and equity used to fund the firm's assets

M&M Proposition I with taxes states that

the levered value of a firm exceeds the firm's unlevered value

Which one of the following best defines legal bankruptcy

A legal proceeding for liquidating or reorganizing a business