In determining capital structure, look at _______.

tax rates, collateral quality and cash flows

What condition is good for the lender in case of bankruptcy ?

Good collateral - meaning high value of tangible assets

What does WACC stand for?

Weighted Average Cost of Capital

What does capital structure mean ?

Mix between owner investment & long-term borrowing

What does WACC stand for?

Weighted Average Cost of Capital

Which equation is wrong ?

Cost of borrowing = Cost of equity investment

Are there costs or benefits in borrowing more money ?

Borrowing more money can bring more benefits and more costs

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HSH Frank ICF: LT Financing & WACC

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Long-Term Financing & WACC

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Questions 11

Answers

1
In determining capital structure, look at _______.
cash flows, tax rate and risk free rate
cash flows, collateral quality, beta
tax rates, collateral quality and cash flows
cash flows, collateral quality, balance sheet
2
What condition is good for the lender in case of bankruptcy ?
Good collateral - meaning high value of tangible assets
Good collateral - meaning high value of intangible assets
Low collateral - meaning high value of intangible assets
Low collateral - meaning high value of tangible assets
3
The structure that minimizes the average cost of capital for the firm
Optimal Structure
Ordinal Structure
Required Structure
Ultimate Structure
4
What does WACC stand for?
Weighted Average Cost of Capital
Weighted Average Company Costs
Weighted Activities Cost of Capital
Working Average Capital Compilation
5
What does capital structure mean ?
Mix between owner investment & long-term borrowing
Mix between short-term borrowing & long-term borrowing
Capital structure is only relevant for short-term financing.
Mix between owner investment & short-term borrowing
6
What does WACC stand for?
Weighted Aggregate Capital Cost
Weighted Annual Cost of Capital
Weighted Average Cost of Capital
Weighted Average Capital Cost
7
What is not a typical cost of more borrowing ?
Higher Legal Cost
Higher Management distractions
Higher taxes
Increased probability of bankruptcy cost
8
Which equation is wrong ?
Cost of borrowing = Interest rate on loans
Cost of borrowing = Cost of equity investment
Cost of Capital = Cost of obtaining external financing
Cost of equity investment = Necessary expected return
9
Are there costs or benefits in borrowing more money ?
Borrowing more money means always more benefits
Borrowing more money means always more costs
Borrowing more money can bring more benefits and more costs
Borrowing more money has neither benefits nor costs
10
The lower a company's WACC, the cheaper it is for a company to fund new projects.
TRUE
FALSE
11
In case cost of capital in your company is at 11% - which project is a good project ?
Project B with a return of 10%
Project C with a return of 8%
None of the 3 projects
Project A with a return of 15%

HSH Frank ICF: LT Financing & WACC Flashcards | StudBud