Fin Test 3
internal funds
According to ________, a company borrows up to the point where the marginal benefit of the interest tax shield derived from increased debt is just equal to the marginal expense of the resulting increase in financial distress costs. the static theory of capital structure According to the pecking-order theory, firms prefer to use ________ before any other form of financing
Pure Play
Assume a manager determines the cost of capital for a specific project based on the cost of capital at another firm with a line of business that is like the project. Accordingly, the manager is using the ________ approach
return on a riskless asset
CAPM shows that the expected return for a particular asset depends on all the following except
strong
The U.S. Securities and Exchange Commission periodically charges individuals with insider trading and claims those individuals have made unfair profits. Given this, you would be most apt to argue that the markets are less than _____ form efficient
· assign appropriate, but differing, discount rates to each business line and then select the projects with the highest net present values.
Velasquez Manufacturing has two vastly different lines of business: Alpha and Omega. The Alpha line is the riskiest of the two, and accounts for 72 percent of the firm's sales. When deciding which project proposals should be accepted, the managers should
standard deviation; beta
___ measures total risk and _____ measures systematic risk
companies stockpile internally generated cash
according to the pecking order theory
unsystematic risk
an investor who owns a well diversified portfolio would consider ___ to be irrelevant
based on the market values of the outstanding securities
calculating a firms WACC, the capital structure weights are
risky
expected return is the return on an _____ asset expected in the future
dependent upon a company's capital structure
financial risk
reward to risk ratio
if the market is efficient and securities are price fairly all securities will have the same
Cost of Debt
interest rate is called
weighed
portfolio beta is the _____ average of the betas of the investments included in the portfolio
true
risk-free assets have a beta of 0 and the market portfolio has a beta of 1
false
the arithmetic average tells you what you earned per year
is positively related to the company's cost of equity
the business risk of a company
The cost of equity
the return that equity investors require on their investment in the firm
beta
the security market line is a positively sloped straight line that displays the relationship between expected return and ___
WACC is minimized
the value of a firm is maxed when
geometric averages
when attempting to forecast for extremely long intervals such as 50 years it is best to use
it can be effectively eliminated by portfolio diversification
which if the following regarding unsystematic risk is true
The optimal capital structure maximizes shareholder value.
which is true
the info was expected
which of the following is the most likely reason why a stock price might not react ay all on the day that new info related to the stocks issuer is released?
Cap gain yield and total return
which of the following yields on a stock can be negative
Paying an outside accountant to prepare bankruptcy reports.
which one of the following is a direct cost of bankruptcy