MBA 702 Module 4 Final Exam
Questions and Answers.
risk, present - Answer value of the firm is the ___ adjusted ___ value of all the expected
future available to the providers of financing.
interest, FCF - Answer Although the financial decision does affect the cash flow through the
____ expense and possibly other cash flows, it does not affect ___
free cash flow - Answer ____ is the money available after operations and taxes that belongs
to creditors and owners.
debt, equity, capital, WACC - Answer We will always show the effect of changing ___ and ___
on value by adjusting the cost of ___, often taken to be the ___
WACC - Answer ____ is the discount rate for finding the value now of those cash flows
w(d) r(d) (1-t) + w(s) r(s) - Answer WACC = _____
weight, debt, equity - Answer WACC is where the w is the ___ of ____ (d) and ____ (s) used
tax cost - Answer WACC is where r is the before ____ of each type of debt and equity
tax rate - Answer WACC is where t is the firm's marginal ____
w - Answer The financial decision is choosing the ___ of each, debt and equity.
valuation, decreasing - Answer Since WACC is in the denominator of the ____ equation, we
can increase firm value by _____ WACC.
minimize, maximize, ceteris paribus - Answer If we ____ WACC, we ____ VALUE, ____.
related - Answer The problem is that changing the weights seems to simultaneously change
the ____ r(s) and r(d).
precisely - Answer To make it even worse, no one has shown a way to ____ predict the size
of the changes in the respective costs (r(s) and r(d)).
, Why? - Answer We just can't definitively say that a particular firm should use a particular
amount of debt financing.
residual cash, dividends, reinvest - Answer Another part of this financial decision is the
question of how much of ____ flow do we pay as ____ and how much do we ____ in the firm to
provide funding for the investment decision?
Net income - Answer _____ is used to either pay dividends or support assets with retained
earnings.
retained earnings - Answer Since ____ affect w(s) (and hence w(d)) and WACC, we do not
really have a definitive answer for how large the dividends should be.
capital structure, dividend decisions - Answer How financing decisions may affect value;
____ and ____
business risk, tax effects, information effects - Answer Capital structure include: ___, ___,
and ____
Business risk, FCF - Answer ____ refers to the predictability of the firm's operating cash
flows, in effect the predictability of ____
investment - Answer Business risk is the risk of the ____ decision.
what, how, where, business risk - Answer When a firm makes major strategic decisions about
___ goods and services to produce, ___ to produce them, and ___ to try to sell them, they are
locking into a relatively narrow range of ____.
business, financial - Answer The total risk of the firm would then depend on a combination
of the ___ and ____ risk
financial risk - Answer ____ the risk of our choice of w(d) and w(s)).
business, financial - Answer If the firm has unpredictable operating cash flows (high ___
risk), adding a lot of ____ risk by using a high level of debt, a "large w(d)", is probably a bad
idea.
Questions and Answers.
risk, present - Answer value of the firm is the ___ adjusted ___ value of all the expected
future available to the providers of financing.
interest, FCF - Answer Although the financial decision does affect the cash flow through the
____ expense and possibly other cash flows, it does not affect ___
free cash flow - Answer ____ is the money available after operations and taxes that belongs
to creditors and owners.
debt, equity, capital, WACC - Answer We will always show the effect of changing ___ and ___
on value by adjusting the cost of ___, often taken to be the ___
WACC - Answer ____ is the discount rate for finding the value now of those cash flows
w(d) r(d) (1-t) + w(s) r(s) - Answer WACC = _____
weight, debt, equity - Answer WACC is where the w is the ___ of ____ (d) and ____ (s) used
tax cost - Answer WACC is where r is the before ____ of each type of debt and equity
tax rate - Answer WACC is where t is the firm's marginal ____
w - Answer The financial decision is choosing the ___ of each, debt and equity.
valuation, decreasing - Answer Since WACC is in the denominator of the ____ equation, we
can increase firm value by _____ WACC.
minimize, maximize, ceteris paribus - Answer If we ____ WACC, we ____ VALUE, ____.
related - Answer The problem is that changing the weights seems to simultaneously change
the ____ r(s) and r(d).
precisely - Answer To make it even worse, no one has shown a way to ____ predict the size
of the changes in the respective costs (r(s) and r(d)).
, Why? - Answer We just can't definitively say that a particular firm should use a particular
amount of debt financing.
residual cash, dividends, reinvest - Answer Another part of this financial decision is the
question of how much of ____ flow do we pay as ____ and how much do we ____ in the firm to
provide funding for the investment decision?
Net income - Answer _____ is used to either pay dividends or support assets with retained
earnings.
retained earnings - Answer Since ____ affect w(s) (and hence w(d)) and WACC, we do not
really have a definitive answer for how large the dividends should be.
capital structure, dividend decisions - Answer How financing decisions may affect value;
____ and ____
business risk, tax effects, information effects - Answer Capital structure include: ___, ___,
and ____
Business risk, FCF - Answer ____ refers to the predictability of the firm's operating cash
flows, in effect the predictability of ____
investment - Answer Business risk is the risk of the ____ decision.
what, how, where, business risk - Answer When a firm makes major strategic decisions about
___ goods and services to produce, ___ to produce them, and ___ to try to sell them, they are
locking into a relatively narrow range of ____.
business, financial - Answer The total risk of the firm would then depend on a combination
of the ___ and ____ risk
financial risk - Answer ____ the risk of our choice of w(d) and w(s)).
business, financial - Answer If the firm has unpredictable operating cash flows (high ___
risk), adding a lot of ____ risk by using a high level of debt, a "large w(d)", is probably a bad
idea.
