2433963
Description
Flashcards by dylan_earl, updated more than 1 year ago
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Created by dylan_earl
over 10 years ago
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| Question | Answer |
| What is capital structure | Mix of debt and equity to value a firm |
| Whose names stand for MM | Modigliani and Miller |
| Does 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. |
| What is Homemade Leverage | Whatever a company achieves by changing structure can be replicated by shareholders themselves. |
| More debt in a capital structure means what about EPS? | More Risky. |
| Formula for Firms debt-equity ratio | r-Equity = r-Assets + D/E x (rAssets - rDebt) |
| Interest Tax on debt is deductible T/F | True |
| What is an interest tax shield | Tax Savings resulting from deductibility of interest payments |
| Corporate taxes but no financial distress costs, increases value of firm from leverage T/F | True |
| What is MMs Modified Proposition 2 | Required return on firms equity increases as firms Debt-Equity Ratio increases |
| What are costs of Financial Distress | Costs from bankruptcy or decisions related to bankruptcy |
| What is the trade off theory | Financial Managers choose level of debt which will balance the firms interest tax shields against costs of financial distress |
| What is Pecking order Theory | Firms prefer to issue debt rather than equity if internal finance is insufficient (Debt issues are less likely to be interpreted by market as bad) |
| What is the goal of the Financial Manager | Maximize value of the firm |
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