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Chap 13 study quiz
Terms in this set (36)
______ _______is the mixture of sources of funds (debt, preferred stock and common stock) that a firm uses to finance assets.
When a firm uses debt to finance its assets this creates ______.
The financing sources (debt, preferred and common stock) that make up a firm's capital structure all have different ______ and degrees of riskiness.
A measure of the magnitude of the effect of fixed costs on operating income is the degree of ______ leverage.
_________ costs are those costs that do not vary with the company's level of production.
Costs that change as the company's production levels change are called _____costs.
_________ leverage is the additional volatility of net income caused by the presence of fixed costs associated with having debt in the capital structure.
Firms that have higher proportions of debt in their capital structure will have _______financial leverage.
The risk associated with financial leverage is _______ risk.
The total degree of business risk that a company faces is a function of both ______ volatility and the degree of operating leverage.
The risk associated with operating leverage is ______ risk.
The total effect of operating and financial leverage is called ______ leverage.
The ______ of financial leverage is the percentage change in net income divided by the percentage change in EBIT.
The presence of debt in a company's capital structure and the accompanying interest cost create extra ______ for the firm.
One of the primary advantages of using debt financing (for companies eligible under the TCJA) is the tax deductibility of _______.
Fixed ______ costs create operating leverage, fixed financial costs create financial leverage, and these two types of leverage together form combined leverage.
If fixed operating costs and fixed interest cost were both zero, there would be no ______ effect.
Higher leverage is helpful when sales _______, because it magnifies the positive change.
_______ in projects may change a firm's fixed operating and financing costs, thereby affecting the firm value.
Fixed costs may affect a firm's _______ because of leverage effects and the resulting risk from those leverage effects.
______ analysis is a key to understanding operating leverage.
A sales _________ chart shows graphically how fixed costs, variable costs, and sales revenue interact.
In breakeven analysis, the ______ breakeven point is the level of sales that a firm must reach to cover its operating costs.
A company with high fixed operating costs must generate high sales ______ to reach the sales breakeven pinpoint.
A _______ _______ is when one firm buys out another using a large amount of borrowed money.
Every time a company ______, it increases its financial leverage and financial risk.
New equity financing ______ financial leverage and risk.
Modigliani and Miller suggested that if debt costs did not increase with additional borrowing, the tax deductibility benefit would imply that firms should finance with __________ debt.
Financial managers use capital structure theory to help determine the mix of debt and equity that ______ the weighted average cost of capital.
Firms seek to balance the costs and benefits of debt to reach an ______ mix in their capital structure that maximizes the value of the firm.
Debt capital has a ______ cost than equity capital.
Debt is less risky because bondholders have a ______ superior to that of common stockholders on the earnings and assets of the firm.
Debt financing is cheaper than equity financing for two reasons, the tax deductibility of interest and because debt is less _____.
Financial managers must balance the costs and benefits of debt and use expertise and experience to develop the capital structure they deem ______.
Although debt is cheaper than equity, too much debt will ______ the WACC because it will increase the firm's financial risk.
Changes in financial leverage bring the potential for good and ______ results.
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