Concerning use of assets to change firm capital structure

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Reference no: EM132063987

According to the trade-off theory:

I. Failure to achieve an optimal financing mix will always result in a higher cost of capital.

II. A firm may fail to maximize its market value by avoiding any level of financial leverage.

III. The tax-shield benefits of debt must always be weighed against the costs resulting from increasing the risk of bankruptcy.

A. I only

B. I and II only

C. I and III only

D. II and III only

E. I, II, and III

Which of the following statements is true concerning the use of assets to change a firm's capital structure?

I. As long as the debt-to-equity mix changes in the right direction, the firm can sell any asset it possesses.

II. There must be sufficient assets available to be bought or sold within the desired time horizon

III. Shareholder value must be protected when using a change in assets to achieve a different capital structure

A. I only

B. I and II only

C. I and III only

D. II and III only

E. I, II, and III

Which of the following considerations are important when choosing the right financing instruments to use in the firm's capital structure?

I. Rating agency and analyst concerns

II. Potential conflicts between stock and bond holders

III. The debt characteristics of additional financial leverage

A. I only

B. I and II only

C. I and III only

D. II and III only

E. I, II, and III

Reference no: EM132063987

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