Questions from Financial Management

Q: What is the asymmetric information concept? What role does this concept

What is the asymmetric information concept? What role does this concept play in a company’s decision to change its financial structure or issue new securities?

Q: Describe two techniques that a company can use to hedge against transaction

Describe two techniques that a company can use to hedge against transaction exchange risk.

Q: According to the pecking order theory, if additional external financing is

According to the pecking order theory, if additional external financing is required, which type of securities should a firm issue first? Last?

Q: Explain why, according to the pecking order theory, firms prefer

Explain why, according to the pecking order theory, firms prefer internal financing to external financing.

Q: What assumptions are required in deriving the proposition that a firm’s cost

What assumptions are required in deriving the proposition that a firm’s cost of capital is independent of its capital structure?

Q: What role does signaling play in the establishment of a firm’s capital

What role does signaling play in the establishment of a firm’s capital structure?

Q: What is arbitrage? How is it used in deriving the proposition

What is arbitrage? How is it used in deriving the proposition that the value of a firm is independent of its capital structure?

Q: Explain the difference between business risk and financial risk.

Explain the difference between business risk and financial risk.

Q: What other factors besides operating leverage can affect a firm’s business risk

What other factors besides operating leverage can affect a firm’s business risk?

Q: Referring to Table 13.2, calculate the market value of

Referring to Table 13.2, calculate the market value of firm L (without a corporate income tax) if the equity amount in its capital structure decreases to $5,000 and the debt amount increases to $5,000...