Estimates of the probability and cost of bankruptcy

Assignment Help Financial Management

Reference no: EM132056821

1. The MM theory with taxes implies that firms should issue maximum debt. In practice, this is not true because:

a. Debt is more risky than equity.

b. Bankruptcy is an advantage to debt.

c. Firms will incur large agency costs of short term debt by issuing long term debt.

d. None of these are correct

2. Given realistic estimates of the probability and cost of bankruptcy, the future costs of a possible bankruptcy are borne by:

a. All investors in the firm.

b. Debtholders only because if default occurs interest and principal payments are not made.

c. Shareholders because debtholders will pay less for the debt providing less cash for the shareholders.

d. Management because if the firm defaults they will lose their jobs.

e. None of the other answers.

Reference no: EM132056821

Questions Cloud

Identify the appropriate hypothesis test : Identify the appropriate hypothesis test and explain the reasons why it is appropriate for analyzing this data.

Explain why the designation is of interest to you : Professional Designations - There are many professional licenses and designations that can be earned within the accounting and auditing field.

Explain the high-level planning needed for an industry : Explain the role of US-CERT in protecting the nation's industrial systems & analyze its efforts in relation to preparedness and incident & recovery management.

Find the probability of committing a type 2 error : Find the probability of committing a type 2 error if, in reality, the mean temperature is 396 degrees.

Estimates of the probability and cost of bankruptcy : Given realistic estimates of the probability and cost of bankruptcy, the future costs of a possible bankruptcy are borne by:

What is the present-value equivalent : A professor jokingly promises to give an engineering economics student $2,000,000 (F) exactly 23 years (n) from today, and the student replies.

Prepare the operating activities section of the statement : Prepare the operating activities section of the statement of cash flows for 2015. Use the indirect method

Shipments of for four brands of popular automobiles : Shown below are average daily shipments of for four brands of popular automobiles. Compare the means of these items using the one-way ANOVA method

What is the present worth of device : Prof. Chaos considers which device to purchase. Device A has the initial cost of $1,000, the useful life of 5 years, and the salvage value of $50.

User Account

All Pages