True- False Questions. Circle T or F. Each questiom is wonh 2 pon o po 1. TF It\
ID: 2804943 • Letter: T
Question
True- False Questions. Circle T or F. Each questiom is wonh 2 pon o po 1. TF It's the debtholders who wlt imately bear the conts of banknugcy 2.T F lfafirm has high tevels of free cash flow.*tola "educe its ddivelto minimize agency issues 3.) F Assuming perfect markets, rwacc increases with leverage- components, Tg and To, increase simultancously 4. (T F When finding the discount rate on an investment project, the risk-free ra should always be proxied by the Treasury bill rate. S. TF If a company uses the same cost of capital to discount every availabe project, firm's assets are likely to become riskier over time. 6. T F Poison pills are likely to damage corporate governance in the acquiring firm. 7.TF The cost of a merger to the acquirer equals the gain 8. T F Political risks should always be reflected in the discount rat 9. TF Firms with higher fixed costs in the production process are more likely have higher betas. 10. T F Firms with tangible assets can more easily raise debExplanation / Answer
1.
Debtholder are first claimant for claim after liquadation of company and stockholder is last. So it is stockholder who bear all the cost of bankruptcy.
Statement is false.
2.
Agency cost is cost that arise because conflict between shareholder and management of company. if company repay debt and increase shareholder' equity then conflict between management of stockholder will arise and so cost of agency will also arise.
Statement is false.
3.
in market market, when cost of equity and cost of debt increase then WACC of company must be increase, since WACC of comapny depends and cost of individual capital.
Statement is true.
4.
Treasury bill rate is always considered as risk free rate. so, treasury bill rate is use in CAPM model, or when we have to determine discount rate.
Statement is true.
5.
Risk level of all project is different. So management should adjust the discount of each project according to risk level of project. if company use similar discount rate for all type of project then firm's assets are likely to become riskier.
statement is true.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.