What are business risk and financial risk? How do each influence the firm's capital structure decisions?
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What are business risk and financial risk? How do each influence the firm's capital structure decisions?
Why focus on the optimal capital structure? A company's capital structure decisions address the ways a firm's assets are financed (using debt, preferred stock and common equity capital) and is often presented as a percentage of the type of financing used As with all financial decisions, the firm should try to set a capital structure that maximizes the stock price, or shareholder value. This is called the optimal capital structure Which of the following statements regarding a firm's optimal capital...
Q16.27 If a change in capital structure increases the risk of the firm's equity and the risk of the firm's debt, and there are no other financial daims, does it imply the firm's risk has in- creased?
Which one of the following is the equity risk related to a firm's capital structure policy? Ο Ο extrinsic Ο business Ο financial Ο systematic Ο market
QUESTION 5 Which of the following financial management decisions deals with how the firm's earnings should be distributed? Capital structure Financing Investment Dividend Working capital QUESTION 6 Suppose a firm is considering acquiring another firm. This financial management activity is part of: Capital structure decision Financing decision Investment decision Dividend decision Working capital decision
23. Capital structure decisions refer to the: A. dividend yield of the firm's stock B. blend of equity and debe used by the fim C. capital gains available on the firms stock D. maturity date for the firm's securities 24. If the line measuring a stock's historic returns against the market's historic returns has a slope greater than 1.0, then the: A. stock is currently underpriced B, market risk peemium is increasing. C. stock has a significant amount of unique...
In the context of a firm's capital structure decisions, a famous proposition by Modigliani and Miller implies the following relationship: PE=+(-5) Identify the proposition and explain each of the components in the expression above. Provide an intuitive interpretation of this proposition.
What is WACC (weighted average cost of capital) and how do companies make financial decisions based on it?
What is CAPM (Capital Assets Pricing Model) and how do companies make financial decisions based on it?
Terms Descriptions The level and nature of risk attributable to a firm's activities and operations, and ignoring the risks associated with the firm's capital structure The situation in which managers have different, and usually better, information about their firm's past, current, and future conditions and prospects, compared to outsiders, such as external investors, creditors, suppliers, and customers A firm's use of relatively high fixed, as opposed to variable, operating costs, such as capital-intensive productive processes instead of labor-intensive methods This...
The financial manager has three major tasks. These involve making decisions about capital budgeting, capital structure and working capital management. As I indicated earlier, "the acquiring funds" part or "the finding the lowest cost funds" part corresponds to capital structure decision. Should the firm borrow money from the bank, issue bonds or stocks to generate funds? This would be a capital structure decision. Finding profitable investments part of "finding those investment projects with the highest return adjusted for risk" part...