Final Exam
Spring 2013
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) Capital structure refers to how the firm finances its operations and growth through a combination of ________.
A) equity types B) types of earnings C) types of debt D) security types
2) ________ capital structure refers to a combination of debt and equity that maximizes the value of the firm.

A) An optimal B) A minimal C) A perfect D) An irrelevant
3) Which of the statements below is FALSE?

A) In the bond market, we see different rates as the different yields on bonds for different companies.
B) In general, the cost of funds for an individual or company will be directly related to the lender’s view of the risk of repayment of the funds.
C) The “riskier” borrower will most likely have to pay a lower cost for funds.
D) In the equity market, we see different rates as the different required returns for companies due to their different betas.
4) A large public firm cannot issue which of the following types of securities?
A) Preferred stock B) T-Bills C) Bonds D) Common stock
TRUE/FALSE. Write ‘T’ if the statement is true and ‘F’ if the statement is false.
5) In a perfect financial world, a company’s value is dependent on its capital structure.
6) The return to the investor is the cost to the seller.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
7) You have a project that costs $800,000. It has a 1/3 chance of paying off $3,000,000 and a 2/3 chance of paying off $0. What is the expected profit from the new project?
A) $100,000 B) $200,000 C) $300,000 D) zero
8) Consider two companies that are alike except in borrowing choices. Company 1 has no debt financing, and Company 2 uses debt financing. The EBIT for both companies is $800. Company 1 has 400 shares outstanding and pays no interest. Company 2…