2023年罗斯公司理财题库全集

Chapter 16Capital Structure: Basic Concepts  Multiple Choice Questions 1. The use of personal borrowing to change the overall amount of financial leverage to which an individual is exposed is called: A. homemade leverage.B. dividend recapture.C. the weighted average cost of capital.D. private debt placement.E. personal offset. 2. The proposition that the value of the firm is independent of its capital structure is called: A. the capital asset pricing model.B. MM Proposition I.C. MM Proposition II.D. the law of one price.E. the efficient markets hypothesis. 3. The proposition that the cost of equity is a positive linear function of capital structure is called: A. the capital asset pricing model.B. MM Proposition I.C. MM Proposition II.D. the law of one price.E. the efficient markets hypothesis. 4. The tax savings of the firm derived from the deductibility of interest expense is called the: A. interest tax shield.B. depreciable basis.C. financing umbrella.D. current yield.E. tax-loss carry forward savings. 5. The unlevered cost of capital is: A. the cost of capital for a firm with no equity in its capital structure.B. the cost of capital for a firm with no debt in its capital structure.C. the interest tax shield times pretax net income.D. the cost of preferred stock for a firm with equal parts debt and common stock in its capital structure.E. equal to the profit margin for a firm with some debt in its capital structure. 6. The cost of capital for a firm, rWACC, in a zero tax environment is: A. equal to the expected earnings divided by market value of the unlevered firm.B. equal to the rate of return for that business risk class.C. equal to the overall rate of return required on the levered firm.D. is constant regardless of the amount of leverage.E. All of the above. 7. The difference between a market value balance sheet and a book value balance sheet is that a market value balance sheet: A. places assets on the right hand side.B. places liabilities on the left hand side.C. does not equate the right hand with the left hand side.D. lists items in terms of market values, not historical costs.E. uses the market rate of return. 8. The firm's capital structure refers to: A. the way a firm invests its assets.B. the amount of capital in the firm.C. the amount of dividends a firm pays.D. the mix of debt and equity used to finance the firm's assets.E. how much cash the firm holds. 9. A general rule for managers to follow is to set the firm's capital structure such that: A. the firm's value is minimized.B. the firm's value is maximized.C. the firm's bondholders are made well off.D. the firms suppliers of raw materials are satisfied.E. the firms dividend payout is maximized. 10. A levered firm is a company that has: A. Accounts Payable as the only liability on the balance sheet.B. some debt in the capital structure.C. all equity in the capital structure.D. All of the above.E. None of the above. 11. A manager should attempt to maximize the value of the firm by: A. changing the capital structure if and only if the value of the firm increases.B. changing the capital structure if and only if the value of the firm increases to the benefit of inside management.C. changing the capital structure if and only if the value of the firm increases only to the benefits of the debtholders.D. changing the capital structure if and only if the value of the firm increases although it decreases the stockholders' value.E. changing the capital structure if and only if the value of the firm increases and stockholder wealth is constant. 12. The effect of financial leverage depends on the operating earnings of the company. Which of the following is not true? A. Below the indifference or break-even point in EBIT the non-levered structure is superior.B. Financial leverage increases the slope of the EPS line.C. Above the indifference or break-even point the increase in EPS for all equity structures is less than debt-equity structures.D. Above the indifference or break-even point the increase in EPS for all equity structures is greater than debt-equity structures.E. The rate of return on operating assets is unaffected by leverage. 13. The Modigliani-Miller Proposition I without taxes states: A. a firm cannot change the total value of its outstanding securities by changing its capital structure proportions.B. when new projects are added to the firm the firm value is the sum of the old value plus the new.C. managers can make correct corporate decisions that will satisfy all shareholders if they select projects that maximize value.D. the determination of value must consider the timing and risk of the cash flows.E. None of the above. 14. MM Proposition I without taxes is used to illustrate: A. the value of an unlevered firm equals that of a levered firm.B. that one capital structure is as good as another.C. leverage does not affect the value of the firm.D. capital structure changes have no effect on stockholders' welfare.E. All of the above. 15. A key assumption of MM's Proposition I without taxes is: A. that financial leverage increases risk.B. that individuals can borrow on their own account at rates less than the firm.C. that individuals must be able to borrow on their own account at rates equal to the firm.D. managers are acting to maximize the value of the firm.E. All of the above. 16. In an EPS-EBI graphical relationship, the slope of the debt ray is steeper than the equity ray. The debt ray has a lower intercept because: A. more shares are outstanding for the same level of EBI.B. the break-even point is higher with debt.C. a fixed interest charge must be paid even at low earnings.D. the amount of interest per share has only a positive effect on the intercept.E. the higher the interest rate the greater the slope. 17. In an EPS-EBI graphical relationship, the debt ray and equity ray cross. At this point the equity and debt are: A. equivalent with respect to EPS but above and below this point equity is always superior.B. at breakeven in EPS but above this point debt increases EPS via leverage and decreases EPS below this point.C. equal but away from breakeven equity is better as fewer shares are outstanding.D. at breakeven and MM Proposition II states that debt is the better choice.E. at breakeven and debt is the better choice below breakeven because small payments can be made. 18. When comparing levered vs. unlevered capital structures, leverage works to increase EPS for high levels of EBIT because: A. interest payments on the debt vary with EBIT levels.B. interest payments on the debt stay fixed, leaving less income to be distributed over less shares.C. interest payments on the debt stay fixed, leaving more income to be distributed over less shares.D. interest payments on the debt stay fixed, leaving less income to be distributed over more shares.E. interest payments on the debt stay fixed, leaving more income to be distributed over more shares. 19. Financial leverage impacts the performance of the firm by: A. maintaining the same level of volatility of the firm's EBIT.B. decreasing the volatility of the firm's EBIT.C. decreasing the volatility of the firm's net income.D. increasing the volatility of the firm's net income.E. None of the above. 20. The increase in risk to equityholders when financial leverage is introduced is evidenced by: A. higher EPS as EBIT increases.B. a higher variability of EPS with debt than all equity.C. increased use of homemade leverage.D. equivalence value between levered and unlevered firms in the presence of taxes.E. None of the above. 21. The reason that MM Proposition I does not hold in the presence of corporate taxation is because: A. levered firms pay less taxes compared with identical unlevered firms.B. bondholders require higher rates of return compared with stockholders.C. earnings per share are no longer relevant with taxes.D. dividends are no longer relevant with taxes.E. All of the above. 22. MM Proposition I with corporate taxes states that: A. capital structure can affect firm value.B. by raising the debt-to-equity ratio, the firm can lower its taxes and thereby increase its total value.C. firm value is maximized at an all debt capital structure.D. All of the above.E. None of the above. 23. The change in firm value in the presence of corporate taxes only is: A. positive as equityholders face a lower effective tax rate.B. positive as equityholders gain the tax shield on the debt interest.C. negative because of the increased risk of default and fewer shares outstanding.D. negative because of a reduction of equity outstanding.E. None of the above. 24. A firm should select the capital structure which: A. produces the highest cost of capital.B. maximizes the value of the firm.C. minimizes taxes.D. is fully unlevered.E. has no debt. 25. In a world of no corporate taxes if the use of leverage does not change the value of the levered firm relative to the unlevered firm is known as: A. MM Proposition III that the cost of stock is less than the cost of debt.B. MM Proposition I that leverage is invariant to market value.C. MM Proposition II that the cost of equity is always constant.D. MM Proposition I that the market value of the firm is invariant to the capital structure.E. MM Proposition III that there is no risk associated with leverage in a no tax world. 26. Bryan invested in Bryco, Inc. stock when the firm was financed solely with equity. The firm is now utilizing debt in its capital structure. To unlever his position, Bryan needs to: A. borrow some money and purchase additional shares of Bryco stock.B. maintain his current position as the debt of the firm did not affect his personal leverage position.C. sell some shares of Bryco stock and hold the proceeds in cash.D. sell some shares of Bryco stock and loan it out such that he creates a personal debt-equity ratio equal to that of the firm.E. create a personal debt-equity ratio that is equal to exactly 50% of the debt-equity ratio of the firm. 27. The capital structure chosen by a firm doesn't really matter because of: A. taxes.B. the interest tax shield.C. the relationship between dividends and earnings per share.D. the effects of leverage on the cost of equity.E. homemade leverage. 28. MM Proposition I with no tax supports the argument that: A. business risk determines the return on assets.B. the cost of equity rises as leverage rises.C. it is completely irrelevant how a firm arranges its finances.D. a firm should borrow money to the point where the tax benefit from debt is equal to the cost of the increased probability of financial distress.E. financial risk is determined by the debt-equity ratio. 29. The proposition that the value of a levered firm is equal to the value of an unlevered firm is known as: A. MM Proposition I with no tax.B. MM Proposition II with no tax.C. MM Proposition I with tax.D. MM Proposition II with tax.E. static theory proposition. 30. The concept of homemade leverage is most associated with: A. MM Proposition I with no tax.B. MM Proposition II with no tax.C. MM Proposition I with tax.D. MM Proposition II with tax.E. static theory proposition. 31. Which of the following statements are correct in relation to MM Proposition II with no taxes?I. The required return on assets is equal to the weighted average cost of capital.II. Financial risk is determined by the debt-equity ratio.III. Financial risk determines the return on assets.IV. The cost of equity declines when the amount of leverage used by a firm rises. A. I and III onlyB. II and IV onlyC. I and II onlyD. III and IV onlyE. I and IV only 32. MM Proposition I with taxes supports the theory that: A. there is a positive linear relationship between the amount of debt in a levered firm and its value.B. the value of a firm is inversely related to the amount of leverage used by the firm.C. the value of an unlevered firm is equal to the value of a levered firm plus the value of the interest tax shield.D. a firm's cost of capital is the same regardless of the mix of debt and equity used by the firm.E. a firm's weighted average cost of capital increases as the debt-equity ratio of the firm rises. 33. MM Proposition I with taxes is based on the concept that: A. the optimal capital structure is the one that is totally financed with equity.B. the capital structure of the firm does not matter because investors can use homemade leverage.C. the firm is better off with debt based on the weighted average cost of capital.D. the value of the firm increases as total debt increases because of the interest tax shield.E. the cost of equity increases as the debt-equity ratio of a firm increases. 34. MM Proposition II with taxes: A. has the same general implications as MM Proposition II without taxes.B. reveals how the interest tax shield relates to the value of a firm.C. supports the argument that business risk is determined by the capital structure employed by a firm.D. supports the argument that the cost of equity decreases as the debt-equity ratio increases.E. reaches the final conclusion that the capital structure decision is irrelevant to the value of a firm. 35. MM Proposition II is the proposition that: A. supports the argument that the capital structure of a firm is irrelevant to the value of the firm.B. the cost of equity depends on the return on debt, the debt-equity ratio and the tax rate.C. a firm's cost of equity capital is a positive linear function of the firm's capital structure.D. the cost of equity is equivalent to the required return on the total assets of a firm.E. supports the argument that the size of the pie does not depend on how the pie is sliced. 36. The interest tax shield has no value for a firm when:I. the tax rate is equal to zero.II. the debt-equity ratio is exactly equal to 1.III. the firm is unlevered.IV. a firm elects 100% equity as its capital structure. A. I and III onlyB. II and IV onlyC. I, III, and IV onlyD. II, III, and IV onlyE. I, II, and IV only 37. The interest tax shield is a key reason why: A. the required rate of return on assets rises when debt is added to the capital structure.B. the value of an unlevered firm is equal to the value of a levered firm.C. the net cost of debt to a firm is generally less than the cost of equity.D. the cost of debt is equal to the cost of equity for a levered firm.E. firms prefer equity financing over debt financing. 38. Which of the following will tend to diminish the benefit of the interest tax shield given a progressive tax rate structure?I. a reduction in tax ratesII. a large tax loss carryforwardIII. a large depreciation tax deductionIV. a sizeable increase in taxable income A. I and II onlyB. I and III onlyC. II and III onlyD. I, II, and III onlyE. I, II, III, and IV 39. Thompson & Thomson is an all equity firm that has 500,000 shares of stock outstanding. The company is in the process of borrowing $8 million at 9% interest to repurchase 200,000 shares of the outstanding stock. What is the value of this firm if you ignore taxes? A. $20.0 millionB. $20.8 millionC. $21.0 millionD. $21.2 millionE. $21.3 million 40. Uptown Interior Designs is an all equity firm that has 40,000 shares of stock outstanding. The company has decided to borrow $1 million to buy out the shares of a deceased stockholder who holds 2,500 shares. What is the total value of this firm if you ignore taxes? A. $15.5 millionB. $15.6 millionC. $16.0 millionD. $16.8 millionE. $17.2 million 41. You own 25% of Unique Vacations, Inc. You have decided to retire and want to sell your shares in this closely held, all equity firm. The other shareholders have agreed to have the firm borrow $1.5 million to purchase your 1,000 shares of stock. What is the total value of this firm today if you ignore taxes? A. $4.8 millionB. $5.1 millionC. $5.4 millionD. $5.7 millionE. $6.0 million 42. Your firm has a debt-equity ratio of .75. Your pre-tax cost of debt is 8.5% and your required return on assets is 15%. What is your cost of equity if you ignore taxes? A. 11.25%B. 12.21%C. 16.67%D. 19.88%E. 21.38% 43. Bigelow, Inc. has a cost of equity of 13.56% and a pre-tax cost of debt of 7%. The required return on the assets is 11%. What is the firm's debt-equity ratio based on MM Proposition II with no taxes? A. .60B. .64C. .72D. .75E. .80 44. The Backwoods Lumber Co. has a debt-equity ratio of .80. The firm's required return on assets is 12% and its cost of equity is 15.68%. What is the pre-tax cost of debt based on MM Proposition II with no taxes? A. 6.76%B. 7.00%C. 7.25%D. 7.40%E. 7.50% 45. The Winter Wear Company has expected earnings before interest and taxes of $2,100, an unlevered cost of capital of 14% and a tax rate of 34%. The company also has $2,800 of debt that carries a 7% coupon. The debt is selling at par value. What is the value of this firm? A. $9,900B. $10,852C. $11,748D. $12,054E. $12,700 46. Gail's Dance Studio is currently an all equity firm that has 80,000 shares of stock outstanding with a market price of $42 a share. The current cost of equity is 12% and the tax rate is 34%. Gail is considering adding $1 million of debt with a coupon rate of 8% to her capital structure. The debt will be sold at par value. What is the levered value of the equity? A. $2.4 millionB. $2.7 millionC. $3.3 millionD. $3.7 millionE. $3.9 million 47. The Montana Hills Co. has expected earnings before interest and taxes of $8,100, an unlevered cost of capital of 11%, and debt with both a book and face value of $12,000. The debt has an annual 8% coupon. The tax rate is 34%. What is the value of the firm? A. $48,600B. $50,000C. $52,680D. $56,667E. $60,600 48. Scott's Leisure Time Sports is an unlevered firm with an after-tax net income of $86,000. The unlevered cost of capital is 10% and the tax rate is 34%. What is the value of this firm? A. $567,600B. $781,818C. $860,000D. $946,000E. $1,152,400 49. An unlevered firm has a cost of capital of 14% and earnings before interest and taxes of $150,000. A levered firm with the same operations and assets has both a book value and a face value of debt of $700,000 with a 7% annual coupon. The applicable tax rate is 35%. What is the value of the levered firm? A. $696,429B. $907,679C. $941,429D. $1,184,929E. $1,396,429 50. The Spartan Co. has an unlevered cost of capital of 11%, a cost of debt of 8%, and a tax rate of 35%. What is the target debt-equity ratio if the targeted cost of equity is 12%? A. .44B. .49C. .51D. .56E. .62 51. Hey Guys!, Inc. has debt with both a face and a market value of $3,000. This debt has a coupon rate of 7% and pays interest annually. The expected earnings before interest and taxes is $1,200, the tax rate is 34%, and the unlevered cost of capital is 12%. What is the firm's cost of equity? A. 13.25%B. 13.89%C. 13.92%D. 14.14%E. 14.25% 52. Anderson's Furniture Outlet has an unlevered cost of capital of 10%, a tax rate of 34%, and expected earnings before interest and taxes of $1,600. The company has $3,000 in bonds outstanding that have an 8% coupon and pay interest annually. The bonds are selling at par value. What is the cost of equity? A. 8.67%B. 9.34%C. 9.72%D. 9.99%E. 10.46% 53. Walter's Distributors has a cost of equity of 13.84% and an unlevered cost of capital of 12%. The com