What affect would an increase in the cost of bankruptcy have on the capital structure of a firm?   Question 10 options:   Bankruptcy costs have no impact on the capital structure of firms   Business risk will increase, so firms will use more debt and less equity   Debt will become less expensive, so firms will use more debt and less equity   Debt will become more expensive, so firms will use less debt and more equity

2. Which of the following is false about the under-investment problem? The under-investment problem is greatest for all-equity firms Under-investment leads to a reduction in firm value Equity holders in levered firms may not invest in some positive NPV projects due to the transfer of value to debt-holders Risk-shifting leads to a transfer of value from debt-holders to equity holders Under-investment arises when shareholders forgo positive NPV projects if increase in equity value is greater than the amount to be raised

What effect would a decreased cost of capital have on a firm's future investments?

8. Which of the following does the trade-off theory predict? A. Bankruptcy costs mean having no debt is always optimal. B. Reducing leverage always reduces firm value. C. In the long run the firm's capital structure converges to the optimal one. D. None of the above.

If interaction effects make it difficult for a firm to adjust its capital structure based on prevailing conditions, then Group of answer choices the firm should use as much debt financing as possible when it is financially healthy in order to benefit from lower corporate taxes                                                                                                                                                                                                                          the firm should target a 50% debt/50% equity capital structure the firm should choose the capital structure that will minimize all transaction costs--both direct and indirect the firm should use more equity financing than is necessarily optimal today

Question 18 The pecking order states that firms should: issue debt first. issue new equity first. always issue debt then the market won't know when management thinks the security is overvalued. use internal financing first.

What types of firms would we expect to observe higher direct agency costs of equity, such as consuming excessive perquisites by management ?   Question 7 options:   a)  Firms with high free cash flows   b)  Firms with fewer growth opportunities   c)  Firms with weak governance structures   d)  All of the above options are correct   e)  None of the options are correct

What affect would an increase in the costs of bankruptcy have on the capital structure of a firm?   Question 4 options:   Higher bankruptcy costs make debt less expensive, so firms will use more debt and less equity.   Higher bankruptcy costs make debt more expensive, so firms will use less debt and more equity.   Bankruptcy costs have no impact on the capital structure decision.

Which of the following is NOT an effect of the possibility of bankruptcy? O reduce the possible payoff to stockholders. increase financial distress costs. reduce the interest rate on debt. reduce the current market value of the firm.