According to the trade-off theory of capital structure

Assignment Help Financial Management

Reference no: EM132006389

1. Ana Smith does not believe that the international Fisher effect (IFE) holds. Current one-year interest rates in Europe are 12 percent, while one-year interest rates in the U.S. are 5 percent. Ana converts $100,000 to euros and invests them in France. One year later, she converts the euros back to dollars. The current spot rate of the euro is $1.28.

If the spot rate of the euro in one year is $1.08, what is Ana’s percentage return from her strategy? (Points : 3.5)

a. 8.15%

b. -5.50%

c. -94.50%

d. 108.15%

e. None of the above

2. According to the trade-off theory of capital structure, _____.

A. Optimal capital structure is reached when the present value of tax savings on account of additional borrowing is just offset by increases in the present value of costs of distress

B. Optimal capital structure is reached when stockholders' right to default is balanced by the bondholders' right to get interest and principal payments

C. Optimal capital structure is reached when the benefits of limited liability is just offset by the value of the lawyers' claim

D. More than one of the above

E. None of the above

Reference no: EM132006389

Questions Cloud

Marginal cost of production : Demand for good X can be described by P= 800 - 5Q. There is a fixed cost of $9360. The marginal cost of production is $2 per unit.

Larger share of the state budget : How would this change a college approach to education? What effect would this have on the student and the school's learning environment?

Marginal private cost and the marginal social : The figure above illustrates the marginal private cost and the marginal social cost to the city of Seattle for each rock concert that is offered.

Definition of organizational culture : This is a very thorough examination of Adobe's culture! You provide a definition of organizational culture that identifies what it is

According to the trade-off theory of capital structure : According to the trade-off theory of capital structure, _____.

Why the monetary policy in singapore : Could you please explain why the monetary policy in Singapore is so different from monetary policy in Australia?

Position in the global exchange market last : Since the U.S. dollar is the most preferred currency, why will the American dollar's position in the global exchange market last?

Consideration for access to a permanent suspension bridge : Two roadway designs are under consideration for access to a permanent suspension bridge. Design 1A will cost $2.8 million to build and $200,000

Transnational terrorist activities and threats : How do social, economic, and political factors influence the environment contributing to transnational terrorist activities and threats?

User Account

All Pages