The proposition that a firm borrows up to the point where the marginal benefit of the interest tax shield derived from increased debt is just equal

The proposition that a firm borrows up to the point where the marginal benefit of the interest tax shield derived from increased debt is just equal to the marginal expense of the resulting increase in financial distress costs is called:    A.  the static theory of capital structure. B.  M & M Proposition I. C.  M & M Proposition II. D.  the capital asset pricing model. E.  the open markets theorem. Refer to section 16.6

12.	Which one of the following is the legal proceeding under which an insolvent firm can be reorganized?    A.  restructure process B.  bankruptcy C.  forced merger D.  legal takeover E.  rights offer Refer to section 16.10

13.	A business firm ceases to exist as a going concern as a result of which one of the following?    A.  divestiture B.  share repurchase C.  liquidation D.  reorganization E.  capital restructuring Refer to section 16.10

14.

Edwards Farm Products was unable to meet its financial obligations and was forced into using legal proceedings to restructure itself so that it could continue as a viable business. The process this firm underwent is known as a:    A.  merger. B.  repurchase program. C.  liquidation. D.  reorganization. E.  divestiture. Refer to section 16.10

15.

The absolute priority rule determines:    A.  when a firm must be declared officially bankrupt. B.  how a distressed firm is reorganized. C.  which judge is assigned to a particular bankruptcy case. D.  how long a reorganized firm is allowed to remain under bankruptcy protection. E.  which parties receive payment first in a bankruptcy proceeding. Refer to section 16.10

16.	A firm should select the capital structure that:    A.  produces the highest cost of capital. B.  maximizes the value of the firm. C.  minimizes taxes. D.  is fully unlevered. E.  equates the value of debt with the value of equity. Refer to section 16.1

17.	The value of a firm is maximized when the:    A.  cost of equity is maximized. B.  tax rate is zero. C.  levered cost of capital is maximized. D.  weighted average cost of capital is minimized. E.  debt-equity ratio is minimized.