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12 Cards in this Set
- Front
- Back
For perfect capital markets, are the financing and investment decisions independent or dependent of each other |
Independent |
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For perfect capital markets, there are no taxes, transaction costs, or what? |
Issuance costs |
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In perfect capital markets, investors and firms can trade the same set of securities at competitive market prices equal to the present value of their what? |
Future cash flows |
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Under MM Prop I, the total value of a firm is equal to the what value of the total cash flows generated by its asset? |
Market value |
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Under MM Prop I, is the value of a firm affected or unaffected by its choice of capital structure? |
Unaffected |
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True or False: Under MM Prop I, changing a firm’s capital structure merely changes how the value of its assets is divided between debt and equity, but not the firm’s total value |
True |
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Under MM prop I VL = ? |
Vu |
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Under MM prop II, the cost of capital of levered equity increases with the firm’s what? |
Debt to equity ratio |
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Under MM prop II, are the firm’s WACC and unlevered cost of capital, Ru, the same? |
Yes! |
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In MM Prop II, since debt holders have a priority claim on assets and income above equity holders, debt is less risky than equity and so which inequality is true? |
Rd< Re |
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Under MM Prop II, does the WACC stay the same? |
Yes! |
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Under MM Prop II, as companies take on more debt, the risk to equity holders increases, and subsequently what increases as well? |
Cost of equity |