Chapter 17 - Capital Structure: Limits to the Use of Debt
35. The pecking order states how financing should be raised. In order to avoid asymmetric information problems and misinterpretation of whether management is sending a signal on security overvaluation, the firm's first rule is to: A. finance with internally generated funds.
B. always issue debt then the market won't know when management thinks the security is overvalued.
C. issue new equity first. D. issue debt first. E. None of the above.
Difficulty level: Medium Topic: PECKING ORDER Type: CONCEPTS
36. Growth opportunities _______ the _____ of debt financing. A. increase; advantage B. decrease; advantage C. decrease; disadvantage D. Both A and C E. None of the above
Difficulty level: Medium
Topic: GROWTH OPPORTUNITIES Type: CONCEPTS
37. Which of the following industries would tend to have the highest leverage? A. Drugs B. Computer C. Paper
D. Electronics
E. Biological products
Difficulty level: Easy
Topic: LEVERAGE IN PRACTICE Type: CONCEPTS
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Chapter 17 - Capital Structure: Limits to the Use of Debt
38. The introduction of personal taxes may reveal a disadvantage to the use of debt if the: A. personal tax rate on the distribution of income to stockholders is less than the personal tax rate on interest income.
B. personal tax rate on the distribution of income to stockholders is greater than the personal tax rate on interest income.
C. personal tax rate on the distribution of income to stockholders is equal to the personal tax rate on interest income.
D. personal tax rate on interest income is zero. E. None of the above.
Diff