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1、Chapter17-CapitalStructure:LimitstotheUseofDebtChapter17CapitalStructure:LimitstotheUseofDebt MultipleChoiceQuestions 1. Theexplicitcosts,suchasthelegalexpenses,associatedwithcorporatedefaultareclassifiedas_____costs. A. flotationB. betaconversionC. directbankrup

2、tcyD. indirectbankruptcyE. unlevered 2. Thecostsofavoidingabankruptcyfilingbyafinanciallydistressedfirmareclassifiedas_____costs. A. flotationB. directbankruptcyC. indirectbankruptcyD. financialsolvencyE. capitalstructure 3. Theexplicitandimplicitcostsassociatedw

3、ithcorporatedefaultarereferredtoasthe_____costsofafirm. A. flotationB. defaultbetaC. directbankruptcyD. indirectbankruptcyE. financialdistress 4. Indirectcostsoffinancialdistress: A. effectivelylimittheamountofequityafirmissues.B. serveasanincentivetoincreasethef

4、inancialleverageofafirm.C. includedirectcostssuchaslegalandaccountingfees.D. tendtoincreaseasthedebt-equityratiodecreases.E. includethecostsincurredbyafirmasittriestoavoidseekingbankruptcyprotection. 17-50Chapter17-CapitalStructure:LimitstotheUseofDebt5. Thelegal

5、proceedingforliquidatingorreorganizingafirmoperatingindefaultiscalleda: A. tenderoffer.B. bankruptcy.C. merger.D. takeover.E. proxyfight. 6. Thevalueofafirmismaximizedwhenthe: A. costofequityismaximized.B. taxrateiszero.C. leveredcostofcapitalismaximized.D. weigh

6、tedaveragecostofcapitalisminimized.E. debt-equityratioisminimized. 7. Theoptimalcapitalstructurehasbeenachievedwhenthe: A. debt-equityratioisequalto1.B. weightofequityisequaltotheweightofdebt.C. costofequityismaximizedgivenapre-taxcostofdebt.D. debt-equityratiois

7、suchthatthecostofdebtexceedsthecostofequity.E. debt-equityratioselectedresultsinthelowestpossibleweighedaveragecostofcapital. 8. Inaworldwithtaxesandfinancialdistress,whenafirmisoperatingwiththeoptimalcapitalstructure:I.thedebt-equityratiowillalsobeoptimal.II.the

8、weightedaveragecostofcapitalwillbeatitsminimalpoint.III.therequiredreturnonassetswillbeatitsmaximumpoint.IV.theincreasedbenefitfromadditionaldebtisequaltothein