20) One of the most important factors in making debt less expensive than equity
ID: 2800072 • Letter: 2
Question
20) One of the most important factors in making debt less expensive than equity is A) the seniority of equity obligations to debs claims. B) the tax deductibility of dividends C) the tax deductibility of equity D) the seniority of debt obligations to equity claims. 21. Financial deficits are created when: A. Internal cash flows are greater than the capital-spending requirement. B. Internal cash flows are less than the capital-spending requirement. C. Internal cash flows are equal to the capital-spending requirement. D. All of these. E. None of these. 22. The firm's capital structure refers to: A. the way a firm invests its assets. B. the amount of capital in the firm. C. the amount of dividends a firm pays. D. the mix of debt and equity used to finance the firm's assets. E. how much cash the firm holds. 23. The interest tax shield (= tax deductibility of debt interest) is one of the main reasons why A. WACC is typically higher than cost of equity B. the value of a firm financed with debt is equal to the value of a firm financed with equity. C. the net cost of debt to a firm is generally less than the cost of equity. D. the cost of debt is equal to the cost of equity firm. E. firms prefer equity financing over debt financing 24. With regard to cash management, the benefits of a multilateral netting system include A. The decrease in the expense associated with funds transfer, which in some cases can be over S1,000 for a large international transfer of foreign exchange. B. The savings in administrative time. C. The reduction in the number of foreign exchange transactions and the associated reduced cost of making fewer (but larger) transactions D. All of the aboveExplanation / Answer
20) D) the seniority of debt obligations to equity claim
21) b) internal cash flows are less than the capital spending requirements
22) d) the mix of debt abd equity used to finance the firms asset
23) c) the net cost of debt is lesser than the cost of equity
24) D all of the above
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