The optimal capital structure:   Multiple Choice   will be the same for all companies within the same industry.   will remain constant over time unless the company changes its primary operations.   will vary over time as taxes and market conditions change.   places more emphasis on operations than on financing.   is unaffected by changes in the financial markets.

The optimal capital structure: a. Maximizes the value of equity but not the tax shield associated with debtb. Minimizes the tax shield associated with debtc. Maximizes the value of the company but not necessarily the tax shield associated with debtd. Maximizes the value of the company and the tax shield associated with debt

Companies borrow from various institutions in the capital market to finance their businesses for short and long term periods. The concept of a weighted cost of capital may be new to some of you, but if you were a financial manager why would the weighted cost of capital be important to you as you examine the cost of borrowing on behalf of your firm? Why or why not?

“Efficient working Capital management leads to improve the operating performance of the business concern and it helps to meet the short-term liquidity” Do you agree with the above statement?  Explain. What are the types of working capital policies? Explain and compare of working capital financing policies in criteria of (1) Approach (2) Risk level (3) Profitability (4) Interest costs, and (5) Liquidity management.

Please explain whether a change in the company's capital structure is likely to reduce its overall WACC, and how would this be achieved?

Which of the following statements is CORRECT?   a. WACC calculations should be based on the before-tax costs of all the individual capital components.   b. Flotation costs associated with issuing new common stock normally reduce the WACC.   c. An increase in the risk-free rate will normally lower the marginal costs of both debt and equity financing.   d. A change in a company's target capital structure cannot affect its WACC.   e. If a company's tax rate increases, then, all else equal, its weighted average cost of capital will decline.

Which of the following about optimal capital structure is incorrect?   Optimal capital structure is the mixed of debt and equity capital that minimizes the firm’s weighted average cost of capital A company that follows the pecking order theory will use external financing thru debt after exhausting all the possible financing thru equity The management empire-building theory views high interest payments as to prevent management from unreasonable spending A company can take advantage of its high corporate tax rate as tax shield, under the trade-off theory

The Cost of Capital: Cost of New Common Stock If a firm plans to issue new stock, flotation costs (investment bankers' fees) should not be ignored. There are two approaches to use to account for flotation costs. The first approach is to add the sum of flotation costs for the debt, preferred, and common stock and add them to the initial investment cost. Because the investment cost is increased, the project's expected return is reduced so it may not meet the firm's hurdle rate for acceptance of the project. The second approach involves adjusting the cost of common equity as follows:The difference between the flotation-adjusted cost of equity and the cost of equity calculated without the flotation adjustment represents the flotation cost adjustment. Quantitative Problem: Barton Industries expects next year's annual dividend, D1, to be $1.80 and it expects dividends to grow at a constant rate g = 4.2%. The firm's current common stock price, P0, is $20.60. If it needs to issue new common…

Several factors affect a firm’s need for external funds. Evaluate the effect of each following factor and place a check next to each factor that is likely to increase a firm’s need for external capital—that is, its AFN (additional funds needed). Check all that apply. The firm increases its dividend payout ratio. The firm switches its supplier for the majority of its raw materials. The new supplier offers less favorable credit terms and thus reduces the trade credit available to the firm, resulting in a reduction in accounts payable. The firm improves its production system and increases its profit margin. Accounts payable and accrued liabilities represent obligations that the firm must pay off. Assuming everything else holds constant, if they increase, the firm’s AFN will_________    .

When establishing their optimal capital structure, firms should strive to     minimize the amount of debt financing used minimize the weighted average cost of capital none of the choices maximize the marginal cost of capital