Based on a Study of Capital Structure Changes Over 5-Year

question 45

Multiple Choice

Based on a study of capital structure changes over 5-year time horizons for publicly traded U.S. firms from 1964 to 2003,

• A)net debt issuing activity and net equity issuing activity were equally important in effecting capital structure changes.
• B)net long-term debt issuing activity was the most important mechanism through which a firm's capital structure changed.
• C)net equity issuing activity was the most important mechanism through which a firm's capital structure changed.
• D)net debt issuing activity and stock value changes were equally important in effecting capital structure changes.

---

Definitions:

Incremental Value

The additional or added value created by undertaking a particular action or project, compared to not proceeding.

Net Present Value

A method used in capital budgeting to evaluate the profitability of an investment or project, by calculating the present value of expected cash flows minus the initial investment.

Outstanding Shares

Shares of a company that are owned by investors, including restricted shares held by the company’s insiders.

Value Per Share

A measure reflecting the equity value of a company divided by its total number of outstanding shares, indicating what each share is worth.