Question: A firm should select the capital structure that:

produces the highest cost of capital.

maximizes the value of the firm.

minimizes taxes.

is fully unlevered.

equates the value of debt with the value of equity.

Answer: B

Question:

Answer: Last One

Question:

Answer: A

Question: Which one of the following makes the capital structure of a company irrelevant?

Taxes

Interest tax shield

100 percent dividend payout ratio

Debt-equity ratio that is greater than 0 but less than 1

Homemade leverage

Answer: Homemade Leverage

Question: The concept of homemade leverage is most associated with:

M&M Proposition I with no tax.

M&M Proposition II with no tax.

M&M Proposition I with tax.

M&M Proposition II with tax.

the static theory proposition.

Answer: A

Question:

Answer: C

Question: Which one of the following states that the value of a company is unrelated to the company’s capital structure?

Homemade leverage

M&M Proposition I, no tax

M&M Proposition II, no tax

Pecking-order theory

Static theory of capital structure

Answer: B

Question: Westover Mills reduced its taxes last year by $210 by increasing its interest expense by $1,000. Which one of the following terms is used to describe this tax savings?

Interest tax shield

Interest credit

Homemade leverage shield

Current tax yield

Tax-loss interest

Answer: interest tax Sheild

Question:

Answer: the value of a taxable company increases as the level of debt increases.

Question:

Answer: A