SDSU BA323 BRINCKS FINAL EXAM 2025 | ALL
QUESTIONS AND CORRECT ANSWERS |
GRADED A+ | NEWEST VERSION | VERIFIED
ANSWERS
What is the difference between business risk and financial risk? ---------
CORRECT ANSWER-----------------Business risk is risk from underlying
business, while financial risk is risk from the use of financial instruments
What is the Hamada Equation? ---------CORRECT ANSWER-----------------
The Hamada equation quantifies the increase cost of equity due to financial
leverage.
What does the Hamada equation try to quantify the trade off between? ------
---CORRECT ANSWER-----------------The Hamada equation quantifies the
increase cost of equity due to financial leverage. Or, how adding more debt
increases the cost of equity.
What are the two ways to find a firm's optimal capital structure. ---------
CORRECT ANSWER-----------------Minimize WACC or maximize the stock
price.
What is the Modigliani-Miller Irrelevance Theory? ---------CORRECT
ANSWER-----------------Trade off between tax benefits of debt and
bankruptcy cost
, What are signaling effects in capital structure? ---------CORRECT
ANSWER-----------------Managers have better information about a firm's
long-run value than outside investors.
What will management do if they believe the stock is overvalued or
undervalued? ---------CORRECT ANSWER-----------------If overvalued, stock
will be issued. If undervalued, buyback shares or issue debt
Why do investors view stock offerings as negative for the firm's future
prospects? ---------CORRECT ANSWER-----------------Investors view strong
offering as a negative sign because they think that the company may not
be optimistic about the future.
What are various risk factors for multinational corporations? ---------
CORRECT ANSWER-----------------Different currency exchange rate,
political risk, economic and legal ramifications, role of governments, and
language and culture differences.
How do companies hedge currency risk? ---------CORRECT ANSWER-------
----------Use exchange rate futures/forwards to hedge currency risk
What is exchange rate risk? ---------CORRECT ANSWER-----------------The
risk that the value of cash flows will change due to changes in the value of
exchange rates.
Why do companies care about exchange rate risk? ---------CORRECT
ANSWER-----------------Impact costs and profitability
QUESTIONS AND CORRECT ANSWERS |
GRADED A+ | NEWEST VERSION | VERIFIED
ANSWERS
What is the difference between business risk and financial risk? ---------
CORRECT ANSWER-----------------Business risk is risk from underlying
business, while financial risk is risk from the use of financial instruments
What is the Hamada Equation? ---------CORRECT ANSWER-----------------
The Hamada equation quantifies the increase cost of equity due to financial
leverage.
What does the Hamada equation try to quantify the trade off between? ------
---CORRECT ANSWER-----------------The Hamada equation quantifies the
increase cost of equity due to financial leverage. Or, how adding more debt
increases the cost of equity.
What are the two ways to find a firm's optimal capital structure. ---------
CORRECT ANSWER-----------------Minimize WACC or maximize the stock
price.
What is the Modigliani-Miller Irrelevance Theory? ---------CORRECT
ANSWER-----------------Trade off between tax benefits of debt and
bankruptcy cost
, What are signaling effects in capital structure? ---------CORRECT
ANSWER-----------------Managers have better information about a firm's
long-run value than outside investors.
What will management do if they believe the stock is overvalued or
undervalued? ---------CORRECT ANSWER-----------------If overvalued, stock
will be issued. If undervalued, buyback shares or issue debt
Why do investors view stock offerings as negative for the firm's future
prospects? ---------CORRECT ANSWER-----------------Investors view strong
offering as a negative sign because they think that the company may not
be optimistic about the future.
What are various risk factors for multinational corporations? ---------
CORRECT ANSWER-----------------Different currency exchange rate,
political risk, economic and legal ramifications, role of governments, and
language and culture differences.
How do companies hedge currency risk? ---------CORRECT ANSWER-------
----------Use exchange rate futures/forwards to hedge currency risk
What is exchange rate risk? ---------CORRECT ANSWER-----------------The
risk that the value of cash flows will change due to changes in the value of
exchange rates.
Why do companies care about exchange rate risk? ---------CORRECT
ANSWER-----------------Impact costs and profitability
