If a Venture Has Too Much Money Too Early, Problems

question 20

Multiple Choice

If a venture has too much money too early, problems may occur which can include all except ________.

• A) the firm's flexibility can be reduced by depending on significant cash flow from loans
• B) potential problems can be obscured until their consequences become irreversible
• C) the firm can end up hiring less qualified personnel
• D) the firm can be sheltered from the need to innovate

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Definitions:

Optimal Capital Structure

The best mix of debt, preferred stock, and common equity that maximizes a company's stock price by balancing the costs and benefits of financing.

Weighted Average Cost of Capital

Weighted Average Cost of Capital (WACC) is a calculation of a company's cost of capital in which each category of capital is proportionately weighted.

Tax Shield

The reduction in income taxes that results from taking an allowable deduction from taxable income, such as interest on debt.

Capital Structure

The mix of debt and equity financing a company uses to fund its operations and growth.