Karteikarten
Chapter 16 Cue Cards
Karten in diesem Stapel (14)
- 1What is capital structureMix of debt and equity to value a firm
- 2Whose names stand for MMModigliani and Miller
- 3Does the market value of a company depend on capital structure without taxes?No It doesn't. Managers cannot increase company value by changing mix of securities / equity etc.
- 4What is Homemade LeverageWhatever a company achieves by changing structure can be replicated by shareholders themselves.
- 5More debt in a capital structure means what about EPS?More Risky.
- 6Formula for Firms debt-equity ratior-Equity = r-Assets + D/E x (rAssets - rDebt)
- 7Interest Tax on debt is deductible T/FTrue
- 8What is an interest tax shieldTax Savings resulting from deductibility of interest payments
- 9Corporate taxes but no financial distress costs, increases value of firm from leverage T/FTrue
- 10What is MMs Modified Proposition 2Required return on firms equity increases as firms Debt-Equity Ratio increases
- 11What are costs of Financial DistressCosts from bankruptcy or decisions related to bankruptcy
- 12What is the trade off theoryFinancial Managers choose level of debt which will balance the firms interest tax shields against costs of financial distress
- 13What is Pecking order TheoryFirms prefer to issue debt rather than equity if internal finance is insufficient
(Debt issues are less likely to be interpreted by market as bad) - 14What is the goal of the Financial ManagerMaximize value of the firm