True – False If a competitor (more heavily leveraged than your company) experiences a positive response to an increase in leverage, this suggests that additional debt to your capital structure may decrease your share price.
True – False An industry leader is more likely to have a more stable earnings pattern and therefore have less debt capacity than other companies in the industry.
True – False When comparing your firm to a competitor, it is important to evaluate differences in systematic risk (assuming there are some).
True – False Many companies rely on investment bankers to judge the market response because they generally have a good understanding of the bond rating process and continual contact with security analysts.
True – False Tax changes combined with transaction cost may cause the market to be in disequalibrium.
True – False When conducting a pro-forma analysis, it is necessary to only predict the income statement to calculate the projected financing needs of the organization.
True – False The holding of reserves, and the sale of assets are two available resources that may offset negative cash flow.
True – False Nonfinancial items should not be considered when determining the optimal financial structure.
True – False The lessee uses the assets while the lessor owns the asset.
True – False Beta measures diversifiable or non systematic risk.
True – False The IRS has guidelines for determining if a lease is really an installment sale
True – False The ability to shift the risk of obsolescence, serviceability and residual value to the lessee is typical.
True – False Leases are often used by companies to remove the cost of assets and the corresponding debt from the balance sheet.
True – False Typically, government reimbursement techniques favor ownership over leasing.
True – False Vertical integration may involve buying either a customer or a supplier.
True – False Horizontal integration involves the purchase of an unrelated business.
True – False Information asymmetry could exist where an acquiring firm has a better information set than the market in general.
True – False An acquisition is often easier than a proxy battle, but with an acquisition the acquirer must share a greater proportion of the benefits of any value creation.
True – False The correlation of compensation with the size of an organization is one reason managers might "do a merger" even if it decreases the wealth of the acquiring companies.
True – False Hostile take-over attempts are hostile to the target shareholders but friendly to the target's management.
True – False Ignoring taxes -- if you do not believe the synergistic benefits will occur, you should push for a stock for stock merger.