1. What is the optimal capital structure of a taxpaying corporation that has borrowed money to finance its investments?
a. consists of equal amounts of debt and equity financing.
b. is the mixture of debt and equity financing that minimizes the weighted average cost of capital.
c. is the mixture of debt and equity financing that minimizes the firm's aftertax cost of debt.
d. is 100 percent debt financing.
e. is 100 percent equity financing
2. The market value of a bond is dependent upon its time to maturity, the face value and the:
a. yield to maturity but neither the current yield nor the coupon rate.
b. coupon rate and the current yield.
c. coupon rate but neither the current yield nor the yield to maturity.
d. coupon rate and the yield to maturity.
e. current yield and the yield to maturity.
3. Most all companies have a target or optimal capital structure that they try to maintain. Which of the following describes an "optimal" capital structure? (Note: capital structure is the proportion of money raised from common stock and the proportion raised from debt).
a. None of the other answers is correct.
b. The one that takes the biggest advantage of the tax deductibility of debt by borrowing 100% of the funds required for investment.
c. The capital structure that always borrows half the funds and issues new equity for the other half.
d. The capital structure that results in the lowest cost of obtaining funds; the one with the lowest Weighted Average Cost of Capital (WACC).
e. The one with the highest cost of debt and the lowest cost of equity.
4. Which of the following is the normal "order" for stakeholders in a corporation to be paid from company revenues?
a. Management, suppliers and employees, government, bondholders and other creditors, preferred stockholders, common stockholders.
b. Suppliers and employees, management, bondholders and other creditors, government, preferred stockholders, common stockholders.
c. Preferred stockholders, common stockholders, suppliers and employees, management, bondholders and other creditors, government.
d. Suppliers and employees, management, government, bondholders and other creditors, preferred stockholders, common stockholders.
e. Government, management, bondholders and other creditors, suppliers and employees, preferred stockholders, common stockholders.
5. Venture capital is:
a. financing for new firms that frequently are considered to be highly risky.
b. money raised through a public offering that allows a firm to expand its operations into a new product line.
c. money raised through a public offering that is used to finance a firm's global operations.
d. money used to repurchase shares of a firm's outstanding stock.
e. another term for an initial public offering of equity securities.
6. The primary goal of financial management is to
a. obtain operating capital.
b. maximize shareholder wealth.
c. minimize the risk of the business.
d. minimize the taxes paid on business income.
e. find the highest cost source of funds.