The optimal capital structure of a firm

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Reference no: EM131558412

1. The optimal capital structure of a firm:

[A] will remain constant over time unless the firm makes an acquisition.

[B] will be the same for all firms in the same industry.

[C] will vary over time as taxes and market conditions change.

2. In a world with corporate taxes, MM theory implies that that all firms should choose an all-debt capital structure.

[A] True

[B] False

3. A firm is technically insolvent when:

[A] the value of its stock declines by more than 50 percent in any given 12-month period.

[B] the value of the firm's assets is less than the value of the firm's liabilities.

[C] it is unable to meet its financial obligations.

4. Which one of the following statements is correct concerning a Chapter 7 bankruptcy?

[A] A firm reorganizes its operations in an effort to return to being a viable concern.

[B] A trustee will assume control of the firm's assets until those assets can be liquidated.

5.If the net present value of a project is positive (non-zero), then the project's internal rate of return will exceed its required rate of return.

[A] True

[B] False

Reference no: EM131558412

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