# Harvard Business School Finance Course With 100% Correct Screen Shots Solutions Of Mentioned Questions

The cost of debt is generally lower than the cost of equity.
Top of Form
True
False
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M&M’s Proposition I states that a company’s value is independent of its capital structure.
Top of Form
True
False
Bottom of Form
A higher level of leverage generally reduces managerial discretion.
Top of Form
True
False
Bottom of Form
The Pecking Order Theory of capital structure implies a unique optimum capital structure.
Top of Form
True
False
Bottom of Form
As EBIT drops, the return on equity (ROE) of a levered firm drops ______ the ROE of an otherwise identical unlevered firm.
Top of Form the same as
relatively more than
relatively less than
more or less than (it cannot be determined)
Bottom of Form
Shareholders prefer high risk projects when facing a high probability of bankruptcy because
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High-risk projects usually bring high rewards.
Shareholders have a residual claim on a company.
Creditors have the residual claim on a company and therefore bear the risk.
There is a good chance the government will rescue them in bankruptcy.
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The _________ states that the value of the firm is determined solely by the value of its assets.
Top of Form
M&M proposition I
The Pecking Order Model
Agency Theory
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Which of the following expresses the value of a levered firm (VL) in the Static Tradeoff model of optimal capital structure? [Note: VU denotes the value of the unlevered firm; CFD denotes expected costs of financial distress; and PV denotes present value.]
Top of Form
VL = PV(Tax Shield) – PV(CFD)
VL = VU + PV(Tax Shield) / PV(CFD)
VL = VU + PV(Tax Shield) – PV(CFD)
VL = VU + PV(Tax Shield)
Bottom of Form
An example of the indirect costs of bankruptcy is
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Court costs
Lost sales due to costumers and suppliers lost trust
All of the above
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Which of the following are equivalent under M&M proposition I?
Top of Form
Maximizing firm value and maximizing firm profit
Maximizing firm value and minimizing the cost of capital
Minimizing firm’s cost of capital and minimizing firm’s debt burden
Maximizing profit and minimizing taxes
Bottom of Form

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