罗斯公司理财试题库cha.doc

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Chapter 17
Capital Structure: Limits to the Use of Debt
 
Multiple Choice Questions
 
1. The explicit costs, such as the legal expenses, associated with corporate default are classified as _____ costs. 
A. flotation
B. beta conversion
C. direct bankruptcy
D. indirect bankruptcy
E. unlevered
 
2. The costs of avoiding a bankruptcy filing by a financially distressed firm are classified as _____ costs. 
A. flotation
B. direct bankruptcy
C. indirect bankruptcy
D. financial solvency
E. capital structure
 
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3. The explicit and implicit costs associated with corporate default are referred to as the _____ costs of a firm. 
A. flotation
B. default beta
C. direct bankruptcy
D. indirect bankruptcy
E. financial distress
 
4. Indirect costs of financial distress: 
A. effectively limit the amount of equity a firm issues.
B. serve as an incentive to increase the financial leverage of a firm.
C. include direct costs such as legal and accounting fees.
D. tend to increase as the debt-equity ratio decreases.
E. include the costs incurred by a firm as it tries to avoid seeking bankruptcy protection.
 
5. The legal proceeding for liquidating or reorganizing a firm operating in default is called a: 
A. tender offer.
B. bankruptcy.
C. merger.
D. takeover.
E. proxy fight.
 
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6. The value of a firm is maximized when the: 
A. cost of equity is maximized.
B. tax rate is zero.
C. levered cost of capital is maximized.
D. weighted average cost of capital is minimized.
E. debt-equity ratio is minimized.
 
7. The optimal capital structure has been achieved when the: 
A. debt-equity rat