When your firm decreases the debt in its capital


1. When your firm decreases the debt in its capital structure...

a. it will reduce financial risk.

b. it will reduce its unlevered beta.

c. it will reduce business risk.

2. Say your company's stock returns becomes less volatile than in the past and, as a result, beta falls. Then assuming all the other important variables are held constant...

a. it will be more difficult to obtain a positive NPV for capital investment projects.

b. there will be no impact on capital investment project evaluation.

c. capital investment projects your company evaluates will have higher NPVs.

3. If your firm wanted to avoid the formalities involved in a merger offer to another firm, or if you expected resistance by the target company's management to your merger offer, then you probably will...

a. ask the board of the target company to fire the current leadership team.

b. make a public tender offer for the shares of the target company.

c. file for a merger exception with the SEC.

4. The proper way to determine an appropriate price for acquiring a firm is to...

a. project the additional cash flows resulting from the purchase, discount them back to PV using a cost of capital, and then add them up.

b. find the current market price of the target company's stock, multiply this by the number of shares outstanding to get market capitalization, or market value.

c. use the target company's current price/earnings ratio and multiply this by the company's current net income.

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Financial Management: When your firm decreases the debt in its capital
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