Multiple Choice

QUESTION 3 The value of equity should decrease by the present value of expected bankruptcy costs. True False QUESTION 4 Individual investors are taxed at a lower rate on capital gains than on dividends. True False QUESTION 5 With market frictions, capital structure will affect firm value. True False QUESTION 6 Bankruptcy costs reduce firm value, leading managers to avoid high leverage. True False QUESTION 7 The pecking order theory predicts that firms will trade-off the tax-shield benefits of debt and the costs of bankruptcy. True False