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Finance Flashcards

Finance T?F

Agency problems arise due to the separation of ownership and control and can arise between stockholders and managers or between stockholders and bondholders True
The appropriate goal of a financial manager is to maximize stockholder wealth, maximize the price per share of the firm’s common stock, or to maximize the firm’s earnings per share. False
Due to the inverse relationship between interest rates and value, when the yield to maturity of a bond that is selling at par decreases, the bond will sell at a premium True
Standard Deviation of returns measures total risk, and it consists of market or systematic risk as measured by beta and of firm specific risk which can be diversified away. True
Net present value, internal rate of return, and profitability index can give conflicting accept/reject capital budgeting decisions for independent projects with normal cash flows. False
The appropriate costs to use in determining a firm’s weighted average cost of capital are the marginal, after-tax costs of the firm’s individual security issues. True
A firm’s optimal capital budget is the oint where the marginal cost of capital intersects the firm’s investment opportunity. True
The benefit of debt financing comes from the tax deductibility of interest payments and the not from fact that the debt is a cheaper source of financing than equity True
As a general rule, the capital structure that maximizes stock price also Minimizes the weighted average cost of capital
Capital structure theory implies which of the following.. A. Capital Structure changes signal important information to investors B. Firms with higher marginal tax rates have relatively higher optimal levels of debt C. Firms with higher levels of asymmetric information have relatively lower optimal levels of debt.
When a firm pays a stock dividend The number of shares outstanding increases.
Stock Dividends and Stock splits do what to shareholders wealth NOTHING
The Ex-Dividend date refers to the last day on which investors can purchase a stock and receive the previously announced dividend. False

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