FIN 321 Final exam Quizzes

The use of leverage as a way to signal​ ________ information to investors is known as the signaling theory of debt.

• Random

• Good

• Bad

• None of the Above

The direct cost of bankruptcy are estimated to be far greater, as a percent of assets than indirect cost of bankruptcy.

• True

• False

The optimal capital structure depends on​ ________ such as​ taxes, distress costs and agency costs.

• Capital Market Factors

• Firm Specific Risks

• Market Imperfections

• Systematic Risks

The relative proportions of​ debt, equity, and other securities that a firm has outstanding constitute its​ ________.

• paid out capital

• dividend expense

• capital structure

• retained earnings

The presence of a large amount of debt can encourage shareholders to take excessive risk because​ ________.

• the cost of failure are borne largely by debt holders

• debt holders are risk seeking

• firm value increases with risk taking

• equity holders are risk seeking by nature

When a firm repurchases​ shares, the supply of shares is​ ________, but at the same​ time, the value of the​ firm's assets​ ________.

• reduced, declines

• increased, increase

• reduced, increase

• increased, declines

The optimal dividend policy when dividend tax rates exceed capital gains tax rates is to pay dividends only.

• True

• False

The practice of maintaining relatively constant dividends is called ______.

• Dividend smoothing

• Dividend rollover

• Dividend rollbacks

• Dividend calibrations

In a stock split or stock​ dividend, the company issues additional shares rather than cash to its shareholders.

• True

• False

The date two business days prior to the date on which all shareholders of record receive a payment is called the​ ________ date.

• declaration

• record

• ex-dividend

• distribution