Capital Structure

Front 1

For perfect capital markets, are the financing and investment decisions independent or dependent of each other

Back 1

Independent

Front 2

For perfect capital markets, there are no taxes, transaction costs, or what?

Back 2

Issuance costs

Front 3

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?

Back 3

Future cash flows

Front 4

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?

Back 4

Market value

Front 5

Under MM Prop I, is the value of a firm affected or unaffected by its choice of capital structure?

Back 5

Unaffected

Front 6

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

Back 6

True

Front 7

Under MM prop I VL = ?

Back 7

Vu

Front 8

Under MM prop II, the cost of capital of levered equity increases with the firm’s what?

Back 8

Debt to equity ratio

Front 9

Under MM prop II, are the firm’s WACC and unlevered cost of capital, Ru, the same?

Back 9

Yes!

Front 10

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?

Back 10

Rd< Re

Front 11

Under MM Prop II, does the WACC stay the same?

Back 11

Yes!

Front 12

Under MM Prop II, as companies take on more debt, the risk to equity holders increases, and subsequently what increases as well?

Back 12

Cost of equity