Question : 81.A graphical representation of the Agency Cost/Tax Shield Trade-Off Model : 1325739

 

 

 

81.A graphical representation of the Agency Cost/Tax Shield Trade-Off Model is shown. Various components of the graph are labeled. Which of the following corresponds to line 1?

a.Present value of interest tax shields on debt

b.Present value of expected bankruptcy and agency costs

c.Value of levered firm with bankruptcy costs

d.Value of levered firm in the absence of bankruptcy and agency costs

e.Value of firm under all-equity financing

 

 

 

82.A graphical representation of the Agency Cost/Tax Shield Trade-Off Model is shown. Various components of the graph are labeled. Which of the following corresponds to line 2?

a.Present value of interest tax shields on debt

b.Present value of expected bankruptcy and agency costs

c.Value of levered firm with bankruptcy costs

d.Value of levered firm in the absence of bankruptcy and agency costs

e.Value of firm under all-equity financing

 

 

 

83.A graphical representation of the Agency Cost/Tax Shield Trade-Off Model is shown. Various components of the graph are labeled. Which of the following corresponds to line 3?

a.Present value of interest tax shields on debt

b.Present value of expected bankruptcy and agency costs

c.Value of levered firm with bankruptcy costs

d.Value of levered firm in the absence of bankruptcy and agency costs

e.Value of firm under all-equity financing

 

 

 

84.A graphical representation of the Agency Cost/Tax Shield Trade-Off Model is shown. Various components of the graph are labeled. Which of the following corresponds to line 4?

a.Present value of interest tax shields on debt

b.Present value of expected bankruptcy and agency costs

c.Value of levered firm with bankruptcy costs

d.Value of levered firm in the absence of bankruptcy and agency costs

e.Value of firm under all-equity financing

 

 

 

85.A graphical representation of the Agency Cost/Tax Shield Trade-Off Model is shown. Various components of the graph are labeled. Which of the following corresponds to line 5?

a.Present value of interest tax shields on debt

b.Present value of expected bankruptcy and agency costs

c.Value of levered firm with bankruptcy costs

d.Value of levered firm in the absence of bankruptcy and agency costs

e.Value of firm under all-equity financing

 

 

 

86.The issue of corporate capital structure has similarities to college students’ financial situations because:

a.Many students use borrowed funds to finance their education.

b.Most finance students will ultimately work for a major corporation and will make decisions as to how the firm finances its investment in assets.

c.using debt to finance one’s education is similar to issuing stock to finance investment in a firm’s assets

d.both (a) and (c)

 

 

 

87.A person’s FICO score can range from:

a.300 to 850.

b.300 to 800.

c.600 to 850.

d.300 to 600.

 

 

 

88.The FICO score:

a.was developed by Fair Isaac & Company

b.is based on a person’s income and overall indebtedness, the type of debt outstanding and the monthly payment amounts.

c.can have a large impact on the interest rate a person is charged on their mortgage.

d.all of the above

e.(b) and (c) only

 

 

 

89.In examining the question as to whether or not capital structures are randomly selected, we generally find that:

a.capital structures show strong industry patterns.

b.within industries, the most profitable companies borrow the least.

c.corporate and personal income taxes influence capital structures, but taxes alone cannot explain differences in leverage across firms, industries or countries.

d.shareholders consider leverage-increasing events to be “good news” and leverage-decreasing events to be “bad news.”

e.All of the above