According to the trade-off theory, a firm's optimal capital structure: Question 8 options: is the debt-equity...
According to the trade-off theory, a firm's optimal capital structure:
Question 8 options:
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is the debt-equity ratio that results in the lowest possible weighted average cost of capital. |
|
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exists when the debt-equity ratio is 0.50. |
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is the debt-equity ratio that exists at the point where the firm's weighted after-tax cost of debt is minimized. |
|
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is found by locating the mix of debt and equity which causes the earnings per share to equal exactly $1. |
Homework Answers
According to the trade off theory, benefits associated with interest rate tax shield will be compared with the cost of financial distress of the debt capital and debt equity ratio should be formulated which will be reducing the overall cost of capital of the company.
it is just not related to lowering the cost of debt capital but it is related to lowering the cost of overall capital structure.
Rest of the statements are false.
correct answer will be option( A) optimal capital structure is the debt equity ratio that result in lowest possible weighted average cost of capital.
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According to the trade-off theory, a firm's optimal capital
structure:
Question 8 options:
is the debt-equity...
According to the trade-off theory, a firm's optimal capital structure: Question 11 options: exists when the...
According to the trade-off theory, a firm's optimal capital structure: Question 11 options: exists when the debt-equity ratio is 0.50. is the debt-equity ratio that results in the lowest possible weighted average cost of capital. is found by locating the mix of debt and equity which causes the earnings per share to equal exactly $1. is the debt-equity ratio that exists at the point where the firm's weighted after-tax cost of debt is minimized.
please somebody help me answer this, the assignment is due in 1h According to the trade-off...
please somebody help me answer
this, the assignment is due in 1h
According to the trade-off theory, a firm's optimal capital structure: is the debt-equity ratio that exists at the point where the firm's weighted after- tax cost of debt is minimized. is the debt-equity ratio that results in the lowest possible weighted average cost of capital. exists when the debt-equity ratio is 0.50. is found by locating the mix of debt and equity which causes the earnings per share...
ZYZ Inc. is considering a project with the following cash flows: Year Cash Flow (CF) 0...
ZYZ Inc. is considering a project with the following cash flows: Year Cash Flow (CF) 0 -$200,000 1 $30.000 2 $40,000 3 $50,000 4 $60,000 5 $70.000 If the discount rate is 5%, what is the NPV of the proposed project? $12.253.47 O $21,009.43 $10,572.99 $11,572.99 Question 22 (2 points) The primary idea behind the net present value rule is that an investment: O is worthwhile if it creates value for the owners. must have total cash flows that equal...
According to the trade-off theory, under which of the following conditions will a firm's capital structure...
According to the trade-off theory, under which of the following conditions will a firm's capital structure be optimal? Select one: a. Marginal bankruptcy-related costs = 0 b. Marginal tax shelter benefits - Marginal bankruptcy-related costs = Interest charges c. Debt/assets ratio = Marginal tax shelter benefits d. Marginal tax shelter benefits = Marginal bankruptcy-related costs e. Marginal tax shelter benefits = Interest charges
Refer to the figure for the comparison of MM propositions and the "trade-off theory" of capital...
Refer to the figure for the comparison of MM propositions and the "trade-off theory" of capital structure, as we discussed in lectures, there should be an optimal level of leverage ratio (or debt-equity ratio) according to the "trade-off theory". True or False?
1. The optimal capital structure has been achieved when the: A) debt-equity ratio is equal to...
1. The optimal capital structure has been achieved when the: A) debt-equity ratio is equal to 1. B) weight of equity is equal to the weight of debt. C) cost of equity is maximized given a pretax cost of debt. D) debt-equity ratio is such that the cost of debt exceeds the cost of equity. E) debt-equity ratio results in the lowest possible weighted average cost of capital. 2. M&M Proposition I with tax implies that the: A) weighted average...
The traditional theory of optimal capital structure states that firms trade off corporate interest tax shields...
The traditional theory of optimal capital structure states that firms trade off corporate interest tax shields against the possible costs of financial distress due to borrowing. What does this theory predict about the relationship between book profitability and target book debt ratios? Is the theory’s prediction consistent with the facts?
The trade-off theory relies on the threat of financial distress. But why should a public corporation...
The trade-off theory relies on the threat of financial distress.
But why should a public corporation ever have to land in financial
distress? According to the theory, the firm should operate at the
top of the curve in Figure 1. Of course, market movements or
business setbacks could bump it up to a higher debt ratio and put
it on the declining, right-hand side of the curve. But in that
case, why doesn't the firm just issue equity, retire debt,...
What is a firm's optimal capital structure? The optimal capital structure refers to a capital structure...
What is a firm's optimal capital structure? The optimal capital structure refers to a capital structure that: (Select the best choice below.) A. is comprised of 99.9% equity capital B. will minimize the composite cost of a firm's capital for raising a given amount of funds C. will minimize the firm's common stock price D. is comprised of 99.9% debt capital.
The firm's target capital structure is the mix of debt, preferred stock, and common equity the...
The firm's target capital structure is the mix of debt, preferred stock, and common equity the firm plans to raise funds for its future projects. The target proportions of debt, preferred stock, and common equity, along with the cost of these components, are used to calculate the firm's weighted average cost of capital (WACC). If the firm will not have to issue new common stock, then the cost of retained earnings is used in the firm's WACC calculation. However, if...
please somebody help me answer
this, the assignment is due in 1h
According to the trade-off theory, a firm's optimal capital structure: is the debt-equity ratio that exists at the point where the firm's weighted after- tax cost of debt is minimized. is the debt-equity ratio that results in the lowest possible weighted average cost of capital. exists when the debt-equity ratio is 0.50. is found by locating the mix of debt and equity which causes the earnings per share...
ZYZ Inc. is considering a project with the following cash flows: Year Cash Flow (CF) 0 -$200,000 1 $30.000 2 $40,000 3 $50,000 4 $60,000 5 $70.000 If the discount rate is 5%, what is the NPV of the proposed project? $12.253.47 O $21,009.43 $10,572.99 $11,572.99 Question 22 (2 points) The primary idea behind the net present value rule is that an investment: O is worthwhile if it creates value for the owners. must have total cash flows that equal...
1. The optimal capital structure has been achieved when the: A) debt-equity ratio is equal to 1. B) weight of equity is equal to the weight of debt. C) cost of equity is maximized given a pretax cost of debt. D) debt-equity ratio is such that the cost of debt exceeds the cost of equity. E) debt-equity ratio results in the lowest possible weighted average cost of capital. 2. M&M Proposition I with tax implies that the: A) weighted average...
The trade-off theory relies on the threat of financial distress.
But why should a public corporation ever have to land in financial
distress? According to the theory, the firm should operate at the
top of the curve in Figure 1. Of course, market movements or
business setbacks could bump it up to a higher debt ratio and put
it on the declining, right-hand side of the curve. But in that
case, why doesn't the firm just issue equity, retire debt,...
What is a firm's optimal capital structure? The optimal capital structure refers to a capital structure that: (Select the best choice below.) A. is comprised of 99.9% equity capital B. will minimize the composite cost of a firm's capital for raising a given amount of funds C. will minimize the firm's common stock price D. is comprised of 99.9% debt capital.
The firm's target capital structure is the mix of debt, preferred stock, and common equity the firm plans to raise funds for its future projects. The target proportions of debt, preferred stock, and common equity, along with the cost of these components, are used to calculate the firm's weighted average cost of capital (WACC). If the firm will not have to issue new common stock, then the cost of retained earnings is used in the firm's WACC calculation. However, if...
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