finance Word Scramble

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Question	Answer
A company should select the capital structure that _____	maximizes the company's value
The manager of a firm should change the capital structure if and only if ___.	it increases the value of the firm
The value of the firm is maximized when the weighted average cost of capital (WACC) is _____.	minimized
The value of a firm is equal to the value of its _____.	debt plus equity
Financial leverage affects the performance of a firm because the range of possible values for ___.	earnings per share is wider
A firm's capital structure refers to ___.	the firm's mix of debt and equity
Volatility or ______ increases for equity holders when leverage increases.	risk
A beneficial rule to follow is to set the firm's capital structure so that Blank______	the firm's value is maximized
An individual can duplicate a levered firm through a strategy called ____ where the investor uses his own funds plus borrowed funds to buy stocks.	homemade leverage
The value of the firm is maximized when the weighted average cost of capital (WACC) is (minimized/maximized).	minimized
According to M&M Proposition I, a firm's capital structure choices _____.	do not affect the value of the firm
______ is the term that describes the capital structure when debt is used to finance assets.	Financial leverage
An investor who invests in the stock of a levered firm rather than in an all-equity firm will require:	a higher expected return.
Which of the following statements are true regarding the effect of financial leverage and the firm's operating earnings?	Financial leverage increases the slope of the EPS line. The rate of return on assets is unaffected by leverage. Below the indifference or break-even point in EBIT, an unlevered capital structure is best.
Under M&M Proposition II with no taxes, the weighted average cost of capital is invariant to the debt level because ___.	the return on assets (RA) is unchanged
The expected return on equity is _____ to leverage.	positively related
Which of the following are generally true about the cost of equity and the cost of debt?	The cost of debt is generally lower than the cost of equity. The cost of debt increases with leverage. The cost of equity may increase with leverage.
With ____, an investor is able to replicate a corporation's capital structure by borrowing funds and using those funds along with her own money to buy the company's stock.	homemade leverage
The equity risk that comes from the nature of a firm's operating activities is known as _____ risk.	business
In the absence of taxes, the value of a firm is the same with debt financing as it is with equity financing because ___.	MM demonstrated that debt financing is neither better nor worse than equity financing in the absence of taxes the asset to be financed is the same
Holding equity in an unlevered firm has no risk.	false
MM Proposition II shows that ___.	the cost of equity rises with leverage.
In 2019, the net interest deduction is limited to what percent of EBITDA?	50
Under the MM propositions with no taxes, managers cannot change the value of the firm by repackaging its securities because __.	the overall cost of capital cannot be reduced as debt is added, the equity becomes more risky
When calculating the cash flow for a levered firm, you must consider _____.	cash flows to both bondholders and stockholders
The WACC is the cost of ______ times its weight in the capital structure plus the cost of ______ times its weight in the capital structure	debt; equity
What is the most important benefit of debt?	It provides a tax benefit.
The equity risk that comes from the financial policy or capital structure decisions of the firm is known as _____ risk.	financial
What is the expression for the value of a levered firm in the presence of corporate taxes?	Value of Levered Firm = Value of Unlevered Firm + Tax Benefit of Debt
An unlevered firm ____.	has an all-equity capital structure
In the presence of corporate taxes, the tax shield effect of debt will ____ the value of the firm.	increase
According to the Tax Cuts and Jobs Act of 2017, after 2021, the net interest deduction drops to what percent of EBIT?	30
The value of a levered firm will be greater than the value of an identical unlevered firm because the levered firm's taxes will be:	lower.
A corporation gains no value from an interest tax shield if which of the following are true?	Corporate tax rates are zero. The corporation has no debt. The corporation is an all-equity fir
Which of these statements is true regarding corporate capital structures?	The capital structure that maximizes the value of the firm provides the most benefit for its stockholders.
The value of a levered firm in MM Proposition I with corporate taxes equals the value of an all-equity firm Blank______.	plus the tax rate times the value of debt
M&M Proposition I does not work with corporate taxes because ___.	levered firms pay lower taxes than unlevered firms

Created by: agordon93