Accounting

[QUESTION] Contrast the net operating income (NOI) approach with the Modigliani and Miller (M&M) approach to the theory of capital structure.

[QUESTION] Why might you suspect that the optimal capital structure would differ significantly from one industry to another? Would the same factors produce differing optimal capital structures within all industry groupings?

[QUESTION] What factors determine the interest rate a firm must pay for debt funds? Is it reasonable to expect this rate to rise with an increasing debt-to-equity ratio? Why?

[QUESTION] What is the total-value principle as it applies to capital structure?

[QUESTION] Define the notion of arbitrage. How does it affect the issue of capital structure?

[QUESTION] If there were no imperfections in financial markets, what capital structure should the firm seek? Why are market imperfections important considerations in finance? Which imperfections are most important?

[QUESTION] What are bankruptcy costs? What are agency costs? How do they affect the valuation of the firm when it comes to financial leverage?

[QUESTION] Why do institutional lenders no longer lend money to a corporation when it takes on too much debt?

[QUESTION] Suppose that a company were to earn negligible profits and pay no taxes. How would this affect the firm’s optimal capital structure?

[QUESTION] If the corporate tax rate were cut in half, what would be the effect on debt financing?