Harvard University Operations And Supply Chain Management Assignment Help - Capital Structure

Question - 1. If investors prefer firms that retain most of their earnings, then a firm that wants to maximize its
stock price should set a low payout ratio. A) True B) False
2. If a firm adopts a residual distribution policy, distributions are determined as a residual after funding
the capital budget. Therefore, the better the firm's investment opportunities, the lower its payout ratio
should be. A) True B) False
3. Stock dividends and stock splits should, at least conceptually, have the same effect on
shareholders wealth. A) True B) False
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4. Blease Inc. has a capital budget of $625,000, and it wants to maintain a target capital structure of
60% debt and 40% equity. The company forecasts a net income of $475,000. If it follows the residua ...Read More l
dividend policy, what is its forecasted dividend payout ratio? A) 40.61% B) 42.75% C) 45.00% D)
47.37% E) 49.74%
5. Becker Financial recently completed a 7-for-2 stock split. Prior to the split, its stock sold for $90 per
share. If the total market value was unchanged by the split, what was the price of the stock following
the split? A) $23.21 B) $24.43 C) $25.71 D) $27.00 E) $28.35
6. Different borrowers have different risks of bankruptcy, and bankruptcy is costly to lenders.
Therefore, lenders charge higher rates to borrowers judged to be more at risk of going bankrupt. A)
True B) False
7. A firm's business risk is largely determined by the financial characteristics of its industry, especially
by the amount of debt the average firm in the industry uses. A) True B) False
8. The trade-off theory states that the capital structure decision involves a tradeoff between the costs
and benefits of debt financing. A) True B) False
9. Elephant Books sells paperback books for $7 each. The variable cost per book is $5. At current
annual sales of 200,000 books, the publisher is just breaking even. It is estimated that if the authors'
royalties are reduced, the variable cost per book will drop by $1. Assume authors' royalties are
reduced and sales remain constant; how much more money can the publisher put into advertising (a
fixed cost) and still break even? A) $600,000 B) $466,667 C) $333,333 D) $200,000 E) None of the
above
10. Vu Enterprises expects to have the following data during the coming year. W hat is Vu's expected
ROE? Assets $200,000 Interest rate 8%D/A 65% Tax rate 40%EBIT $25,000 A) 12.51% B) 13.14%
C) 13.80% D) 14.49% E) 15.21%
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