BUS 629 W5D1

Thinking about the definition of the term "flotation costs," should we expect the flotation costs for debt to be significantly lower than those for equity?  Why or why not?  how can the answer be supported.

Is this statement true or false? Please explain in detail As debt-financing is usually cheaper than equity financing, debt-financing will lower risk for transnational company.

Which of the following is true regarding a company assuming more debt?   Select one: a. Assuming more debt is always bad for the company b. Assuming more debt reduces leverage c. Assuming more debt can be good for the company as long as they earn a return in excess of the rate charged on the borrowed funds d. Assuming more debt is always good for the company

While the use of debt can lower the average cost of capital, there is a point that the debt leverage gets high enough it increases the cost of capital. Group of answer choices True False

Is it better to finance a company thru debt or thru equity? Why? What are the downside and upside to each?

Using more debt lowers profits and thus the ROA. Why doesn’t debt have the samenegative effect on the ROE?

There are advantages and disadvantages of debt financing in contrast to equity financing. Which of the following is less likely to represent an advantage of debt financing? a. The cost of debt should be lower than the cost of equity for most companies due to the lower risk to the lender and the tax deductibility of interest b. The repayment of debt capital may affect the liquidity of the company c. If the return on assets exceeds the cost of debt, then this will result in a higher return on shareholders’ funds as compared to the return on assets d. The increase in borrowings will not normally affect the voting control of the current shareholders as compared to the issue of shares e. Fixed interest rate loans will result in the variability in the market value of such loans over time which will normally be less than the variability in the value of the equity of the company

Why does the use of debt lower the profit margin and the ROA?

Debt allows an economy to appear very large but debt also creates more ____ in an economy. Inevitability Surety Certainty Risk Business

Why can an M&A fail? O a. Economies of scale O b. shortcomings of the due diligence process, problems not discovered O c. Higher debt taking capability O d. Tax allowances

If a firm’s ROE is low and management wants to improve it, explain how using more debtmight help.

Which of the following is most correct about the cost of capital?     The cost of debt reflects the interest rates on debt capital before taking into account the tax effects.   Cost of capital is affected by the required rates of return of each of the source of capital, regardless of the capital structure.   The capital asset pricing model is the most widely used model to estimate the cost of common equity.   To minimize the cost of capital, firms should borrow more than their capacity because increasing the lower cost of debt yields the lowest cost of capital, thus, enhances shareholder value.

The optimal capital structure: a. Maximizes the value of equity but not the tax shield associated with debtb. Minimizes the tax shield associated with debtc. Maximizes the value of the company but not necessarily the tax shield associated with debtd. Maximizes the value of the company and the tax shield associated with debt

(a) – Explain the concept of Tax Deduction in WACC. Does this tax deduction make debt finance Cheaper Then Equity Finance?  (b) – Compare Dividend Valuation Model with Capital Asset Pricing Model in the context of calculating cost of equity? Can use of these two methods result in differing values of business?

Why do companies often prefer debt financing to other forms of financing for capitalinvestments?a. Actually, they don't prefer debt financing. They usually try to use retainedearnings for capital investments.b. Because bond holders are happy to just break even on their bonds.c. Because the MARR all but guarantees the projects will return yields greater thanthe interest on the loans.d. Because debt interest is tax deductible, reducing significantly the actual cost ofborrowing money for projects.

Why is there a positive leverage from use of debt? How can we tell that?

Which of the following statements are true about the interest-burden ratio? Check all that apply: If the company has no financial leverage, the interest-burden ratio will be equal to 1. A company with higher financial leverage will have a lower interest-burden ratio. if the company has no financial leverage, the interest-burden ratio will be equal to 0. It can be expressed as Net profits/Pretax profits. It can be expressed as EBIT/Interest Expense.

If we drop the assumption that there are no information and transaction costs, in addition to dropping the no-tax assumption, then the Modigliani and Miller model suggests: Companies will not always increase their use of debt. Capital structure has no impact on companies’ value Capital structure has impact on companies’ cost of capital Companies will always increase their use of debt.

The key benefits associated with refunding debt are the reduction in the firm's debt ratio and the creation of more reserve borrowing capacity. true or false explain