Which of the following statements concerning capital structure theory is NOT CORRECT?
A. Under MM with zero taxes, financial leverage has no effect on a firm's value.
B. Under MM with corporate taxes, the value of a levered firm exceeds the value of the unlevered firm by the product of the tax rate times the market value dollar amount of debt.
C. Under MM with corporate taxes, rs increases with leverage, and this increase exactly offsets the tax benefits of debt financing.
D. Under MM with corporate taxes, the effect of business risk is automatically incorporated because rsL is a function of rsU.
E. The major contribution of Miller's theory is that it demonstrates that personal taxes decrease the value of using corporate debt.
Answer: C
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The Sarbanes-Oxley Act requires that:
A. public corporations disclose whether they have adopted a code of ethics for senior financial officers. B. special committees of the board be assigned special areas of concern. C. directors are provided with lower incentives to ensure their corporations are not breaking the law. D. privately traded corporations have board audit committees comprising only of internal directors.
Which of the following shareholders are entitled to vote?
A. Someone who owns common stock and has it listed in his or her name B. An officer of the corporation who does not give an oral or written proxy C. Someone who has sold his or her stock to a relative D. A stockbroker without a proxy from the shareholder
Ayesha is a strategist for the firm Optiks Inc., which produces high-quality HD movie cameras. This company needs a specific material for a new camera they are developing, which is manufactured in large quantities by a competitor called Expert Technology Inc. However, this material is difficult to trade. Because of this, which of the following is most likely the best strategy for Ayesha to suggest?
A. Optiks should form a long-term agreement with Expert Technology. B. Optiks should enter into co-opetition with Expert Technology. C. Optiks should form a short-term agreement with Expert Technology. D. Optiks should acquire Expert Technology.
Which of the following is not a reason analyst recommendations are often more optimistic than warranted by an objective analysis of the facts?
A. Sell recommendations generate lower commissions than buy recommendations. B. The firms for which analysts work may have lucrative investment banking relationships with the firm. C. Many analysts fail to grasp the gravity of the problems facing a company. D. Analysts are often pressured by their superiors to overlook negative information.