13. Do most incremental cost of capital schedules slope upward or downward (when

Question

13. Do most incremental cost of capital schedules slope upward or downward (when read left to right). 14. What is an optimal capital structure?

15. With regard to capital structure choice, what is the tax clientele effect?

16. What type of capital structure change could managers use today to signal their expectations of improved profitability in the future?

17. Capital Budgeting and Long-Term Financing Decisions, 4th Edition ISBN 0-324-25808-9 From chapter 18, if investors are assumed to be well informed, what opportunities are available to managers in choosing a capital structure?

18. From the book, in chapter 18, under what specific conditions is it more likely that information asymmetries would exist between managers and investors?

Explanation / Answer

Incremental cost of capital additional cost of capital required by the investor because o f accepting a project. Future returns are always influenced by the inflation and other risk factors. Both inflation and other risk factors will increase the cost of capital i.e. required return of the investor.

Hence, correct answer is incremental cost slop upwards.

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