Consider the Following Two Statements: (I) a Leveraged Recapitalization Is

question 62

Multiple Choice

Consider the following two statements: (i) A leveraged recapitalization is only recommended if the acquiring firm's debt level was below the
Optimum before the recapitalization.
(ii) With a leveraged recapitalization, the equity price of the target may rise because of the
Increased tax shield from greater debt.

• A)(i) is correct, (ii) is incorrect.
• B)(ii) is correct, (i) is incorrect.
• C)Both (i) and (ii) are correct.
• D)Both (i) and (ii) are incorrect.
• E)None of the above.

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Definitions:

Fixed Manufacturing Overhead Rate

A constant charge used to allocate fixed overhead costs to products or services, regardless of production volume.

Standard Cost System

A cost accounting system that uses standard costs for inventory valuation and as a tool for cost control.

Budgeted Activity

Planned or expected levels of operational activity, which may include sales volume, production quantities, or labor hours, for budgeting purposes.

Fixed Overhead

Costs that do not change with the level of production or sales over a short period, such as rent, salaries, and insurance.