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Principles of Finance

Review Questions

Principles of FinanceReview Questions
1 .
Why does a company’s capital have a cost?
2 .
Why is the rate that debt holders require to entice them to lend money to a company different from the company’s effective cost of debt capital?
3 .
Assume that the corporate tax rate is 21%. Congress is discussing increasing the corporate tax rate to 32%. How might this change the capital structures that companies choose?
4 .
Describe the order of claimants and how it impacts the returns that various providers of capital require to entice them to provide funding to a company.
5 .
Explain what is meant by trade-off theory.
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