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Which of the following terms refer to the situation in which a firm has negative net worth? Multiple Choice   Legal bankruptcy.   Liquidation.   Accounting insolvency.   Technical insolvency.   Business failure.

What is cost of financial distress to the firm without going bankrupt?Give two examples.

18. Which of the following statements is true? A. Payment on interest on debt is considered an expense, while payment of dividends is a return on capital. B. Unpaid common stock dividends can result in liquidation of the firm. C. One of the costs of issuing equity is the possibility of financial distress, while no financial distress is associated with debt. 19. In the real world with the presence of corporate taxation, MM Proposition I that VL- Vu does not hold because: A. levered firms pay less taxes compared with identical unlevered firms. B. bondholders require higher rates of return compared with stockholders. C. dividends are no longer relevant with taxes. 20. AI Robotics Company will earn $120 in one year if it does well. The debtholders are promised payments of $80 in one year if the firm does well. If the firm does poorly, expected earnings in one year will be $20 and the repayment to debtholders will only be $10 because of financial distress cost. The probability of the firm…

Which of the following factors reflect pure market risk for a given corporation?a. Increased short-term interest rates.b. Fire in the corporate warehouse.c. Increased insurance costs.d. Death of the CEO.e. Increased labor costs.

Which of the following is a disadvantage of long-term debt as a means of company financing? Group of answer choices Debtholders have preferential status in the event of a company being wound up. Tax relief is available on interest payments. Debt is often quicker to arrange compared to equity. The amount and timing of interest payments is predictable, making budgeting easier.

The disadvantages of debt to the corporation include all but which of the following? Group of answer choices A. Indenture agreements may place burdensome restrictions on the firm. B. Interest and principal payments must be met regardless of performance results. C. Debt may have to be paid back with "cheaper" dollars because of inflation. D. Too much debt may depress the firm's stock price.

Which of the following would likely encourage a firm to increase the debt in its capital structure? a. The corporate tax rate increases. b. The personal tax rate increases. c. Due to market changes, the firm’s assets become less liquid. d. Changes in the bankruptcy code make bankruptcy less costly to the firm. e. The firm’s sales and earnings become more volatile.

Which of the following statements is CORRECT? O The debt ratio that maximizes expected EPS generally exceeds the debt ratio that maximizes share price. O Increasing its use of financial leverage is one way to increase a firm's return on investors' capital (ROIC). O If a company were to issue debt and use the money to repurchase common stock, this would reduce its return on investors' capital (ROIC). O If a change in the bankruptcy code made bankruptcy less costly to corporations, this would tend to reduce corporations' debt ratios.

7. When faced with financial distress, managers of firms acting on behalf of their shareholders' interests will tend to: I) Favour high-risk, high-return projects even if they have negative NPV; II) Refuse to invest in low-risk, low-return projects with positive NPVs; III) Delay the onset of bankruptcy as long as they can   II only I, II, and III III only I only

The use of financial leverage by the firm has a potential impact on which of the following?             (1) The risk associated with the firm's operations.             (2) The risk experienced by the stockholders             (3) The variability of operating income             (4) The variability of net income             (5) The probability of going bankrupt Group of answer choices: 1, 2, 3 1, 3, 5 3, 4, 5 2, 3, 4 2, 4, 5

DEBT MAY BE BENEFICIAL IN CORPORATE GOVERNANCE FOR THE FOLLOWING REASONS EXCEPT: Select one: O a. BECAUSE OF THE DISCIPLINARY EFFECT ON MANAGERS O b. BECAUSE THE INTEREST PAYMENTS BENEFIT SHAREHOLDERS O c. BECAUSE INTEREST HAS TO BE PAID TO AVOID BANKRUPTCY O d. BECAUSE IT REDUCES FREE CASH FLOWS

What affect would an increase in the costs of bankruptcy have on the capital structure of a firm?   Question 4 options:   Higher bankruptcy costs make debt less expensive, so firms will use more debt and less equity.   Higher bankruptcy costs make debt more expensive, so firms will use less debt and more equity.   Bankruptcy costs have no impact on the capital structure decision.

3. Compare and contrast operating leverage vs. financial leverage.4. What are the factors that will affect break-even and explain a circumstance of how it would affect your decision-making?5. Discuss a warning sign that could result in bankruptcy (either personal or for a business), and what you would do to fix the problem?

Which of the following statements is FALSE? As debt increases, the risk associated with bankruptcy and agency costs is reduced.   Debt is often the least costly form of financing for a firm. Firms should probably use some debt in their capital structure. Different firms are subject to different levels of risk.

Debt overhang occurs when: 1. A company is so indebted that it has little incentive to invest as all the cash flows generated by investments are expected to be appropriated by creditors 2. A company has plenty of free cash flows but few investment opportunities 3. A company issues debt to pay dividends to its shareholders 4. A company carries excessive debt, so that it has the incentive to invest in high risk projects at the expense of creditors

5. The relationship between a firm's capital structure and othercompany attributes As a firm takes on more debt, its probability of bankruptcy    . Other factors held constant, a firm whose earnings are relatively volatile faces a    chance of bankruptcy. Therefore, when other factors are held constant, a firm whose earnings are relatively volatile should use    debt than a more stable firm. When bankruptcy costs become more important, they    the tax benefits of debt.   General Forge and Foundry Corporation currently has no debt in its capital structure, but it is considering using some debt and reducing its outstanding equity. The firm’s unlevered beta is 1.25, and its cost of equity is 13.00%. Because the firm has no debt in its capital structure, its weighted average cost of capital (WACC) also equals 13.00%. The risk-free rate of interest (rRFrRF) is 3%, and the market risk premium (RPMRPM) is 8%. General Forge’s marginal tax rate is 25%. General Forge is examining how…

Which of the following is most consistent with using debt to reduce agency costs or conflicts?   Question 11 options:   Increasing debt reduces a firm’s business risk   The interest paid on debt reduces taxable income and income taxes   The interest paid on debt reduces cash that management of a firm might otherwise waste or use poorly   The issuance of debt helps firms increase their credit rating

Balance Sheet Insolvency occurs when Liabilities are greater than the Assets resulting in negative capital equity.  For a Financial Institution, Insolvency Risk can be defined as the risk that there is insufficient capital to offset either a decrease in the market value of assets relative to liabilities or an increase in liabilities relative to the market value of assets.         A. Describe a situation where Insolvency Risk could be caused one of the many risks that a Financial Institution may face. B. Describe the best protection against insolvency risk at a Financial Institution.

Explain what is meant by the term ‘financial distress’. If we assume that financial distress exists, explain how and why financial distress would cause a firm’s equity to become riskier.