Finding a firm's overall cost of equity is difficult because Blank______. Multiple choice question. it requires the use of differential equations the federal government refuses to disclose equity costs it cannot be observed directly firms primarily use debt to finance their projects

A common problem facing any business entity is the debt versus equity decision. When funds are required toobtain assets, should debt or equity financing be used? This decision also is faced when a company is initiallyformed. What will be the mix of debt versus equity in the initial capital structure? The characteristics of debt arevery different from those of equity as are the financial implications of using one method of financing as opposedto the other.Cherokee Plastics Corporation is formed by a group of investors to manufacture household plastic products.Their initial capitalization goal is $50,000,000. That is, the incorporators have decided to raise $50,000,000 toacquire the initial assets of the company. They have narrowed down the financing mix alternatives to two:1. All equity financing2. $20,000,000 in debt financing and $30,000,000 in equity financingNo matter which financing alternative is chosen, the corporation expects to be able to generate a 10% annualreturn, before…

(1) What factors might lead a company to gainadditional funds through debt financing rather thanthrough equity financing? (2) Why does consumerdebt have a more negative connotation than businessdebt?

Critically discuss over-investment and under-investment problems due to debt usage. What kinds of capital structures could prevent such problems?

The cost of debt is Blank______. Multiple choice question. the opportunity cost lost by a firm's long-term creditors when investing on the firm the return that a firm's equity investors require on their investment in the firm the return that a firm's long-term creditors demand on new borrowing the opportunity cost of the credit given by the short-term creditors

A common feature of an LBO structure is a. the minimal use of debt financing. b. a cash sweep, which is a covenant requiring all excess cash be used to retire debt.c. projected rates of return that explicitly and precisely account for the risks associated with these investments.d. its limited use in only providing seed capital to start-up firms.e. none of the above.

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

There are advantages and disadvantages of debt financing in contrast to equity financing. Which of the following is less likely to represent an advantage of debt financing? a. The cost of debt should be lower than the cost of equity for most companies due to the lower risk to the lender and the tax deductibility of interest b. The repayment of debt capital may affect the liquidity of the company c. If the return on assets exceeds the cost of debt, then this will result in a higher return on shareholders’ funds as compared to the return on assets d. The increase in borrowings will not normally affect the voting control of the current shareholders as compared to the issue of shares e. Fixed interest rate loans will result in the variability in the market value of such loans over time which will normally be less than the variability in the value of the equity of the company

Which of the following statement are true?   Direct transfer of capital involves the aid of investment banks and intermediaries None of the statements are correct Interest rates are likely to decrease when there is an expected increase in inflation Interest rates are likely to grow when companies have declining productive opportunities

Which TWO of the following statements are correct?i)Tax allowable depreciation is a relevant cash flow when evaluating borrowing to buy compared to leasing as a financing choiceii) Asset replacement decisions require relevant cash flows to be discounted by the after-tax cost of debtiii) If capital is rationed, divisible investment projects can be ranked by the profitability index when determining the  optimum investment scheduleiv) Government restrictions on bank lending are associated with hard capital rationing a. ii & iii b. i & ii c. i & iii d. iii & iv