16. A firm\'s capital structure does not affect its free cash flows because FCF
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16. A firm's capital structure does not affect its free cash flows because FCF reflects only operating cash flows, which are available to service debt, to pay dividends to stockholders, and for other purposes. a. True b. False 17. Different borrowers have different risks of bankruptcy. Therefore, lenders charge different a. True rates to borrowers based on the default or credit risk. b. False 18. Business risk is affected by a firm's operations. Which of the following is NOT directly associated with (or does not directly contribute to) business risk? a. Demand variability b. Sales price variability c. The extent to which operating costs are fixed. d. The extent to which interest rates on the firm's debt fluctuate. e. Input price variabilityExplanation / Answer
16. A firm’s capital structure does not affect its free cash flows as discussed in the text, because FCF reflects only operating cash flows, which are available to service debt, to pay dividends to stockholders, and for other purposes. is a TRUE statement.
17. TRUE, Different borrowers have different risks of bankruptcy, and if a borrower goes bankrupt, its lenders will probably not get back the full amount of funds that they loaned. Therefore, lenders charge higher rates to borrowers judged to be more likely to go bankrupt
18. Business risk is affected by a firm's operations but is not affected by input price variability. Option D
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