diet water

A was correct FYI Swap- this is from Schweez- Financial Leverage refers to the use of fixed cost financing, such as debt or preferred stock. Financial Leverage magnifies variability of earnings per share. Firms with a high degree of financial leverage will experience large changes in EPS for a given change in EBIT If central bank actions caused the risk-free rate to increase, what is the most likely change to cost of debt and equity capital? A) Both increase. B) Both decrease. C) One increase and one decrease.

A) Both increase?

both increase. A).

my gut says A here

A

SkipE99 Wrote: ------------------------------------------------------- > FYI Swap- this is from Schweez- Financial Leverage > refers to the use of fixed cost financing, such as > debt or preferred stock. Financial Leverage > magnifies variability of earnings per share. > Firms with a high degree of financial leverage > will experience large changes in EPS for a given > change in EBIT Thanks - this is FL from that little Corp Finance reading where we also have DTL, DOL, DFL… gosh… I don’t remember it now

before I refresh…you guys have answered that already.

^ cpk should be blamed for that ;-p his RSS feed has more preference than us, since he is like 3000+ posts

I need to review corp fi in a big way one of these nights. SS9 surprisingly is I think my weakest score LOS on qbank to date. i apparently am not fond of corporate governance and mergers.

I had forgotten that part too Swap :slight_smile: The correct answer was A. An increase in the risk-free rate will cause the cost of equity to increase. It would also cause the cost of debt to increase. In either case, the nominal cost of capital is the risk-free rate plus the appropriate premium for risk. Modigliani and Miller demonstrated that if corporate taxes are introduced into an otherwise perfect world, the optimal capital structure would be: A) all debt. B) an equal amount of debt and equity. C) all equity.

A) all debt. Because Debt comes with the tax shield, so max debt, has max tax shield, so max benefit. WACC is lowest and Firm Value = MAX

A easy one. I’ll take MM all day.

aaaa

yeah that one was pretty easy…call it an ego booster.A Company A is about to merge with Company B. Relative to the pre-merger financial statements of Company A what would be the most likely impact on the following items if the pooling of interests method was used to record the merger of Company A and B? Total Assets Revenues Profit Margin A) Increases Increase Increases B) Unchanged Increase Increases C) Increases Increases Indeterminate

C

Pooling of interest Total assets -> Increases Revenues -> Increases Profit Margin -> Indeterminate. C)

C - revenues stay same

swap u r having a roll here. I got 2 wrong but u got none. CPK doesn’t qualify in our league. He is a legend.

c is right. Which type of merger is most likely when the motivation for merging is to bootstrap earnings per share (EPS), and what does this imply about the lifecycle stage of the acquirer and the target? A) Conglomerate and same stage. B) Conglomerate and different stages. C) Horizontal and different stages.

A) ?? Conglomerate + Same stage?