The basic lesson of M & M Theory is that the value of a firm is dependent upon:

The optimal capital structure:    A.  will be the same for all firms in the same industry. B.  will remain constant over time unless the firm changes its primary operations. C.  will vary over time as taxes and market conditions change. D.  places more emphasis on operations than on financing. E.  is unaffected by changes in the financial markets. Refer to section 16.6

43.

The static theory of capital structure advocates that the optimal capital structure for a firm:    A.  is dependent on a constant debt-equity ratio over time. B.  remains fixed over time. C.  is independent of the firm's tax rate. D.  is independent of the firm's weighted average cost of capital. E.  equates the tax savings from an additional dollar of debt to the increased bankruptcy costs related to that additional dollar of debt. Refer to section 16.6

44.	The basic lesson of M & M Theory is that the value of a firm is dependent upon:    A.  the firm's capital structure. B.  the total cash flow of the firm. C.  minimizing the marketed claims. D.  the amount of marketed claims to that firm. E.  size of the stockholders' claims. Refer to section 16.7

45.	Which form of financing do firms prefer to use first according to the pecking-order theory?    A.  regular debt B.  convertible debt C.  common stock D.  preferred stock E.  internal funds Refer to section 16.8

46.

Which of the following are correct according to pecking-order theory? I. Firms stockpile internally-generated cash. II. There is an inverse relationship between a firm's profit level and its debt level. III. Firms avoid external debt at all costs. IV. A firm's capital structure is dictated by its need for external financing.    A.  I and III only B.  II and IV only C.  I, III, and IV only D.  I, II, and IV only E.  I, II, III, and IV Refer to section 16.8