1. Indirect costs of bankruptcy are borne principally by:
2. Which of the following lists events in the chronological order from earliest to latest?
3. Dividends are decided by:
I) The managers of a firm II) The government III) The board of directors
4. Discuss some examples of the conflicts of interest that may arise between bondholders and stockholders when a firm is in financial distress.
5. The main advantage of debt financing for a firm is:
I) no SEC registration is required for bond issue II) interest expense of a firm is tax deductible III) unlevered firms have higher value than levered firms
6. Capital structure of the firm can be defined as:
I) the firm's debt-equity ratio II) the firm's mix of different securities used to finance assets III) the market imperfection that the firm's manager can exploit
7. If the capital markets are efficient, then the sale or purchase of any security at the prevailing market price is:
8. Briefly describe the traditional position on capital structure.
Bambe Holdings, Inc. has debt with both a face and a market value of $2,000. This debt has a coupon rate of 6% 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?
9. Profitability ratios indicate:
I) How productively is the firm utilizing its assets. II) How liquid is the firm. III) How profitable is the firm. IV) How highly is the firm valued by the investors.
10. What are the primary reasons for a company to use debt in its capital structure?
11. The difference between Current Assets of a firm and its Current Liabilities is called
12. What are the three basic financial statements?
13. The cash budget is the primary short-term financial planning tool. The key reasons a cash budget is created are:
14. Firms can repurchase shares in the following ways: I) Open market repurchase II) Through a tender offer III) Through a Dutch auction process IV) Through direct negotiation with a major shareholder
15. Stock price cycles or patterns self-destruct as soon as investors recognize them through
16. Which of the following is a statement of semi-strong form efficiency? I) If the markets are efficient in the semi-strong form then prices will adjust immediately to public information II) If the markets are efficient in the semi-strong form then prices reflect all information III) If the markets are efficient in the semi-strong form then prices will adjust to newly published information after a long time delay
17. Net working capital is defined as
18. If a firm permanently borrows $100 million at an interest rate of 8%, what is the present value of the interest tax shield? (Assume that the tax rate is 30%)
19. The difference between Total Assets of a firm and its Total Liabilities is called
20. Capital structure is irrelevant if:
21. In order to find the present value of the tax shields provided by debt, the discount rate used is the:
22. What are the common ratios used to measure liquidity of a firm?
23. What is the model that is used to prepare a pro-forma statement?
24. Briefly explain the information content of share repurchase
25. Generally, a firm is able to find positive NPV opportunities with: I) Financing decisions II) Capital investment decisions III) Short-term borrowing decisions