Sample ACCA STUDY QUESTION BANK. Paper F9 FINANCIAL MANAGEMENT. December 2014 June 2015 Edition

Transcription

1 ecember 2014 June 2015 Edition STUY QUESTION NK Paper F9 FINNIL MNGEMENT T International became a part of ecker Professional Education in T International has 20 years of experience providing lectures and learning tools for Professional Qualifications. Together, ecker Professional Education and T International offer candidates high quality study materials to maximize their chances of success.

2 In 2011 ecker Professional Education, a global leader in professional education, acquired T International. T International has been developing study materials for for 20 years, and thousands of candidates studying for the Qualification have succeeded in their professional examinations through its Platinum and Gold LP training centers in entral and Eastern Europe and entral sia.* ecker Professional Education has also been awarded pproved ontent Provider Status for materials for the iploma in International Financial Reporting (ipifr). Nearly half a million professionals have advanced their careers through ecker Professional Education's courses. Throughout its more than 50-year history, ecker has earned a strong track record of student success through world-class teaching, curriculum and learning tools. Together with T International, we provide a single destination for individuals and companies in need of global accounting certifications and continuing professional education. *Platinum Moscow, Russia and Kiev, Ukraine. Gold lmaty, Kazakhstan ecker Professional Education's Study Materials ll of ecker s materials are authored by experienced lecturers and are used in the delivery of classroom courses. Study System: Gives complete coverage of the syllabus with a focus on learning outcomes. It is designed to be used both as a reference text and as part of integrated study. It also includes the Syllabus and Study Guide, exam advice and commentaries and a Study Question ank containing practice questions relating to each topic covered. Revision Question ank: Exam style and standard questions together with comprehensive answers to support and prepare students for their exams. The Revision Question ank also includes past examination questions (updated where relevant), model answers and alternative solutions and tutorial notes. Revision Essentials*: condensed, easy-to-use aid to revision containing essential technical content and exam guidance. *Revision Essentials are substantially derived from content reviewed by s examining team.

3 PPER F9 FINNIL MNGEMENT STUY QUESTION NK For Examinations to June evry/ecker Educational evelopment orp. ll rights reserved. (i)

4 No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the author, editor or publisher. This training material has been prepared and published by ecker Professional evelopment International Limited: 16 Elmtree Road Teddington TW11 8ST United Kingdom opyright 2014 evry/ecker Educational evelopment orp. ll rights reserved. The trademarks used herein are owned by evry/ecker Educational evelopment orp. or their respective owners and may not be used without permission from the owner. No part of this training material may be translated, reprinted or reproduced or utilised in any form either in whole or in part or by any electronic, mechanical or other means, now known or hereafter invented, including photocopying and recording, or in any information storage and retrieval system without express written permission. Request for permission or further information should be addressed to the Permissions epartment, evry/ecker Educational evelopment orp. cknowledgement Past examination questions are the copyright of the ssociation of hartered ertified ccountants and have been reproduced by kind permission. (ii) 2014 evry/ecker Educational evelopment orp. ll rights reserved.

5 STUY QUESTION NK FINNIL MNGEMENT (F9) ONTENTS Question Page nswer Marks MULTIPLE HOIE QUESTIONS 1 The Financial Management Function The Financial Management Environment Investment ecisions iscounted ash Flow Techniques Relevant ash Flows pplications of F Techniques Project ppraisal under Risk Equity Finance ebt Finance Security Valuation and ost of apital Weighted verage ost of apital and Gearing apital sset Pricing Model Working apital Management Inventory Management ash Management Management of ccounts Receivable and Payable Risk Management usiness Valuation and Ratio nalysis THE FINNIL MNGEMENT FUNTION 1 Private and public sector objectives THE FINNIL MNGEMENT ENVIRONMENT 2 apital market efficiency orporate governance INVESTMENT EISIONS 4 Elvira o ISOUNTE SH FLOW TEHNIQUES 5 Khan o iscounted cash flow Gerrard espatch o arter o RELEVNT SH FLOWS FOR ISOUNTE SH FLOW TEHNIQUES 10 lackwater o ( 97) RG o ( 04) F o ( 05) evry/ecker Educational evelopment orp. ll rights reserved. (iii)

6 FINNIL MNGEMENT (F9) STUY QUESTION NK Question Name or subject Page nswer Marks PPLITIONS OF ISOUNTE SH FLOW TEHNIQUES 13 Sticky Fingers o Taleb o Stan eldark rmstrong o Sassone o ( 04) PROJET PPRISL UNER RISK 18 Sensitivity analysis EQUITY FINNE 19 Moorgate o Greiner o ET FINNE 21 Mr Fidelio Equity and debt issues ( 03) Hendil o ( 06) SEURITY VLUTION N THE OST OF PITL 24 ost of capital Kelly o WEIGHTE VERGE OST OF PITL N GERING 26 Redskins o erlan o PITL SSET PRIING MOEL 28 restlee o ( 92) Wemere ( J90) Guidance manual WORKING PITL MNGEMENT 31 Mugwump o ire o INVENTORY MNGEMENT 33 Wagtail o Tipex o SH MNGEMENT 35 Mr olorado (iv) 2014 evry/ecker Educational evelopment orp. ll rights reserved.

7 STUY QUESTION NK FINNIL MNGEMENT (F9) Question Name or subject Page nswer Marks MNGEMENT OF OUNTS REEIVLE N PYLE 36 Worral o Moore o Frantic o Merton o ( J06) RISK MNGEMENT 40 Fourx o Storace o Three small companies ( J93) Vertid ( J95) Omnitown o ( 91) USINESS VLUTION N RTIO NLYSIS 45 ritish Industrial Group Twello o Salween FURTHER PRTIE QUESTIONS THE FINNIL MNGEMENT FUNTION 48 Non-financial objectives ( 01) Stakeholders ( 02) orporate governance ( 02) RZP o ( J05) GGG o ( J09) Management remuneration ( J05) THE FINNIL MNGEMENT ENVIRONMENT 54 Monopoly ( 03) INVESTMENT EISIONS 55 RR and Payback ( J00) ISOUNTE SH FLOW TEHNIQUES 56 harm o ( J06) Investment appraisal methods ( J06) uo ( 07) S o ( J08) NPV and shareholder wealth ( J08) evry/ecker Educational evelopment orp. ll rights reserved. (v)

8 FINNIL MNGEMENT (F9) STUY QUESTION NK Question Name or subject Page nswer Marks PPLITIONS OF ISOUNTE SH FLOW TEHNIQUES 61 read Products Leaminger o ( 02) apital rationing G o ( 05) Single and multi-period rationing ( 06) PROJET PPRISL UNER RISK 66 Risk and uncertainty ( 04) Umunat o ( 04) EQUITY FINNE N ET FINNE 68 rwin ( J04) Tirwen o ( 04) Echo ( 07) Echo Echo ( 07) JJG o ( J09) NG o ( 09) ebt issue ( 08) OST OF PITL N GERING 75 angers of high gearing ( J04) Oxfield o YGV o ( J10) lose o ( 11) PITL SSET PRIING MOEL 79 urse o ( J08) Rupab o ( 08) WORKING PITL MNGEMENT 81 ash operating cycle ( J04) Level of current assets ( J09) ssociated International Supplies njo o ( 06) INVENTORY MNGEMENT 85 TNG o ( J05) SH MNGEMENT 86 Thorne o ( 05) Optimal cash level ( 06) ZSE o ( J10) (vi) 2014 evry/ecker Educational evelopment orp. ll rights reserved.

9 STUY QUESTION NK FINNIL MNGEMENT (F9) Question Name or subject Page nswer Marks MNGEMENT OF OUNTS REEIVLE N PYLE 89 Factoring and discounting ( J09) Overseas receivables ( J09) Gorla ( 08) RISK MNGEMENT 92 Interest rate management ( J01) Gitlor ( 02) USINESS VLUTION 94 Tundra ( J03) NGN ( J09) Phobis o ( 07) THP o ( J08) artig o ( 08) evry/ecker Educational evelopment orp. ll rights reserved. (vii)

10 STUY MULTIPLE HOIE QUESTION NK FINNIL MNGEMENT (F9) 1 The Financial Management Function 1.1 Which of the following is NEVER consistent with the objective of maximising shareholder wealth? Following corporate social responsibility Increasing sales levels Satisficing Paying dividends 1.2 In which of the following principal/agent relationships is the principal named second? Shareholders and managers ustomers and the company Shareholders and debt-holders Employers and employees 1.3 Which of the following is a sign that a company is failing to maximise shareholder wealth? Management has challenging performance bonuses Investment decisions are evaluated on the basis of their net present value The company has not diversified its operations Financing of the company is via equity finance alone 1.4 Which of the following are not usually considered to be agency costs? osts associated with giving share options to managers osts of monitoring managers osts of obtaining a listing on the stock exchange osts of divergent behaviour by managers 1.5 Which of the following is LEST likely to solve the agency problem between shareholders and managers? Giving managers profit-related rewards Using external auditors to gauge company performance Writing restrictive covenants into bond contracts Monitoring managers actions 2 The Financial Management Environment 2.1 Which of the following statements about interest rates is/are true? (1) In a period of high inflation, one would expect nominal interest rates to be higher than in a period of low inflation. (2) Overdraft interest rates will normally increase in direct proportion to the balance outstanding. 1 only 2 only oth 1 and 2 Neither 1 nor evry/ecker Educational evelopment orp. ll rights reserved. 1

11 FINNIL MNGEMENT (F9) STUY MULTIPLE HOIE QUESTION NK 2.2 Freely fluctuating exchange rates perform which of the following functions? They tend to correct a lack of equilibrium between imports and exports They make imports cheaper and exports more expensive They impose constraints on the domestic economy They eliminate the need for foreign currency hedging 2.3 Which of the following investments is not acceptable as a way for companies to invest short-term cash surpluses? ank deposit account Ordinary shares ertificates of deposit Treasury bills 2.4 Supply side policy is designed for what purpose? To raise the level of aggregate monetary demand in the economy To manage the money supply in the economy To improve the ability of the economy to produce goods and services To reduce unemployment by limiting the supply of labour 2.5 Which ONE of the following government policies would NOT tend to raise national income over time? 3 Investment ecisions Increased expenditure on the economic infrastructure Tax cuts to encourage higher demand from consumers Policies to encourage the training of labour Financial incentives to encourage personal saving 3.1 Which investment appraisal method is generally considered the best model for longrange decision making? Payback ccounting rate of return Internal rate of return Net present value 3.2 Which of the following statements concerning the payback method is correct? It does not consider the time value of money It is the time required to recover the investment and earn a profit It is a measure of how profitable one investment project is compared to another It is reliable for project selection decisions 3.3 In considering the payback period for three projects, Fly o gathered the following data about cash flows: Year 1 Year 2 Year 3 Year 4 Year 5 $ $ $ $ $ Project (10,000) 3,000 3,000 3,000 3,000 Project (25,000) 15,000 15,000 (10,000) 15,000 Project (10,000) 5,000 5, evry/ecker Educational evelopment orp. ll rights reserved.

12 STUY MULTIPLE HOIE QUESTION NK FINNIL MNGEMENT (F9) Which of the projects will achieve payback within three years? Projects,, and Projects and only Project only Projects and only 3.4 Which of the following decision-making models equates the initial investment with the present value of the future cash inflows? ccounting rate of return Payback period Internal rate of return Profitability index 3.5 company wants to know how many years it will take before the accumulated cash flows from an investment equal the initial investment cost, without taking the time value of money into account. Which of the following methods should be used? Payback period iscounted payback period Internal rate of return Net present value 3.6 In making capital budgeting decisions, management may consider factors that are broader than relevant costs alone. Which one of the following factors is LEST likely to be considered a non-financial or qualitative factor? Increase in manufacturing flexibility Improved corporate image Reduced waste and product reworking Reduction in new product development time 4 iscounted ash Flow Techniques 4.1 Which of the following limitations is common to the calculations of payback period, discounted payback, internal rate of return and net present value? They do not consider the time value of money They require multiple trial and error calculations They require knowledge of a company s cost of capital They rely on the forecasting of future data 2014 evry/ecker Educational evelopment orp. ll rights reserved. 3

13 FINNIL MNGEMENT (F9) STUY MULTIPLE HOIE QUESTION NK 4.2 Salem o is considering a project that produces annual net cash inflows of $420,000 for Years 1 through 5 and a net cash inflow of $100,000 in Year 6. The project will require an initial investment of $1,800,000. Salem s cost of capital is 10%. What is the net present value for this project to the nearest $100? $83,000 ($108,200) ($151,400) ($442,000) 4.3 company is considering purchasing a machine that costs $100,000 and has a $20,000 scrap value. The machine will produce annual operating cash inflows of $25,000 each year and has a six-year life. The company uses a discount rate of 10%. What is the net present value of the machine? ($2,405) $8,875 $20,155 $28, n investment in a new product will require an initial outlay of $20,000. The cash inflow from the project will be $4,000 a year for the next six years. Using an 8% discount rate what is the net present value of the investment? ($4,876) ($1,508) ($29) $1, Which of the following phrases defines the internal rate of return on a project? The number of years it takes to recover the investment The discount rate at which the net present value of the project equals zero The discount rate at which the net present value of the project equals one The weighted-average cost of capital used to finance the project 4.6 If a project has a required rate of return of 6%, which of the following statements is correct? The NPV will be positive if the IRR is equal to 5% The project will be rejected if the IRR is equal to 7% The NPV will be negative if the IRR is greater than 6% The project will be accepted if the IRR is greater than 6% 4.7 Which of the following statements is true if the net present value of a project is negative $4,000 and the required rate of return is 5%? The project s IRR is less than 5% The required rate of return is lower than the IRR The NPV assumes cash flows are reinvested at the IRR The NPV would be positive if the IRR was equal to 5% evry/ecker Educational evelopment orp. ll rights reserved.

14 STUY MULTIPLE HOIE QUESTION NK FINNIL MNGEMENT (F9) 4.8 Which of the following items describes a weakness of the internal rate of return (IRR) method? IRR is can only be estimated using a financial calculator or spreadsheet ash flows from the investment are assumed to be reinvested at the IRR The IRR calculation ignores the time value of money The IRR calculation ignores project cash flows occurring after the initial investment is recovered 4.9 firm is contemplating investing $10,000 on 31 ecember 20X1 to earn a single sum of $12,100 receivable on 1 January 20X4. What is the internal rate of return of this investment? 6.5% 7.0% 10.0% 10.5% 4.10 onsider the following graph. NPV Project X 0 15% Project Y Which ONE of the following statements is true? 5 Relevant ash Flows iscount rate Project Y has a higher internal rate of return than project X t discount rate of less than 15%, project Y is preferred to project X Project X is preferred to project Y irrespective of discount rate Project Y is preferred to project X irrespective of discount rate 5.1 Gunning Industries is considering investment in a new machine which has a five year life. The investment in the new machine would also require an immediate increase in working capital of $35,000. Gunning is subject to a 40% corporate tax rate and has a 10% weighted average cost of capital What is the overall discounted cash flow effect on Gunning Industries working capital investment over the life of the new machine? ($7,959) ($10,680) ($13,265) ($35,000) 2014 evry/ecker Educational evelopment orp. ll rights reserved. 5

15 FINNIL MNGEMENT (F9) STUY MULTIPLE HOIE QUESTION NK 5.2 Moore o is considering the acquisition of a new machine costing $105,000. It is estimated that the machine will have a 10-year life and scrap value of $5,000. Over its life the machine is expected to produce 2,000 units each year with a sales price per unit of $500 and combined material and labour costs of $450 per unit. apital allowances are available on a straight-line basis on cost over five years. Moore has a 40% tax rate and tax is paid in the year of returns. What is the post-tax cash flow for the tenth year of the project? $81,000 $68,400 $63,000 $60, Which one of the following will normally affect a project s net present value? Estimated scrap value of the asset Net book value of the asset mount of annual depreciation on the asset moun of head office costs recharged to the project 5.4 What is a capital allowance? government grant reduction in taxable proft epreciation expense Impairment to an asset s value 5.5 arter o paid $1,000,000 for land three years ago. arter estimates that it could sell the land today for $1,200,000. If the land is not sold, arter plans to develop the land at an initial cost of $1,500,000. arter estimates the net operating cash inflow during the first year following development would be $500,000. What is arter s opportunity cost of the development? $1,500,000 $1,200,000 $1,000,000 $500, firm is considering investment in new labour-saving equipment costing $1 million. The current wage rate is $5 per hour but the firm expects this to increase by 5% each year into the foreseeable future. The equipment is expected to save 20,000 labour hours per year. The company s nominal (money) cost of capital is 15.5%. What (to the nearest $000) is the present value of the savings over a ten year planning period? $385,000 $558,000 $615,000 $676, evry/ecker Educational evelopment orp. ll rights reserved.

16 STUY MULTIPLE HOIE QUESTION NK FINNIL MNGEMENT (F9) 5.7 Oze o uses the net present value approach in evaluating projects. ata for a particular project are given below. % per year ost of capital in real terms 10 General inflation rate 5 nnual cash inflow (I) from the project is expected to increase by 6 nnual cash outlay (O) on the project is expected to increase by 4 Which one of the following sets of adjustments will lead to the correct NPV being calculated? I and O to be increased by 5% each year and discounted by 15% each year I to be increased by 6% each year, O to be increased by 4% each year and both discounted by 15% each year I to be increased by 6% each year, O to be increased by 4% each year and both discounted by 15.5% each year I and O to be unadjusted and discounted by 10% each year 5.8 Paisley o plans to purchase a machine costing $13,500. The machine will save labour costs of $7,000 in the first year. Labour rates in the second year will increase by 10%. The general rate of inflation is 8% and the company s real cost of capital is estimated at 12%. The machine has a two year life with an estimated scrap value of $5,000. What is the NPV (to the nearest $10) of the proposed investment? $550 $770 $970 $1, Net present value as used in investment decision-making is based on which ONE of the following? Net income Earnings before interest, taxes and depreciation Earnings before interest and taxes ash flows 5.10 firm expects to receive annual cash flows of $75,000 per year in current price terms for a period of five years. The cash flows will inflate at 4% and the firm s nominal cost of capital is 10%. What is the present value of the expected cash flows (to the nearest $1,000)? $318,000 $375,000 $284,000 $296, evry/ecker Educational evelopment orp. ll rights reserved. 7

17 FINNIL MNGEMENT (F9) STUY MULTIPLE HOIE QUESTION NK 6 pplications of F Techniques 6.1 The profitability index is a variation of which of the following capital budgeting models? Internal rate of return Return on investment Net present value iscounted payback 6.2 Progress o has the following non-divisible projects available: Project PV ash outflows PV ash inflows Profitability index $ $ 1 200, , , , , , ,000 1,300, ,000 1,000, ssuming the company has $1,000,000 to invest in capital projects, which combination of projects should Progress o accept? 1 and 5 only 2 and 4 only 3 and 5 only 1, 2 and 3 only 6.3 company should accept all positive NPV projects when which of the following conditions is true? The company has extremely limited resources for capital investment The company has excess cash on its statement of financial position The company has virtually unlimited resources for capital investment The company currently has limited resources for capital investment but is planning to issue new equity 6.4 company will lease new machinery. The lease term is five years and lease payments of $10,000 will be made annually in advance. What is the present value of the lease payments using a discount rate of 10%? $4,170 $6,209 $37,910 $41, Which one of the following is a possible formula for calculating the profitability index of a project? Subtract actual net income from the minimum required return in dollars ivide the present value of the annual cash inflows by the original cash invested in the project ivide the initial investment for the project by the net annual cash inflow Multiply net profit margin by asset turnover evry/ecker Educational evelopment orp. ll rights reserved.

18 STUY MULTIPLE HOIE QUESTION NK FINNIL MNGEMENT (F9) 7 Project ppraisal under Risk 7.1 ough o has decided to increase its daily muffin purchases by 100 boxes. box of muffins costs $2 and sells for $3 in normal shops. ny boxes not sold in normal shops are sold through ough s economy shop for $1. ough estimates the following probabilities to selling additional boxes: Normal Economy shop sales shop sales Probability What is the expected value of ough s decision to buy 100 additional boxes of muffins? $28 $40 $52 $ lane o purchases a new machine for $340,000. The machine is expected to increase annual cash flows by $110,000 per year for the next four years. The appropriate discount rate is 4%. Using the discounted payback period method, approximately how many years will it take for lane to recover its investment? 3.09 years 3.16 years 3.37 years 3.58 years 7.3 supplier offered Wyatt o $25,000 compensation for losses resulting from faulty raw materials. lternately, a lawyer offered to represent Wyatt in a lawsuit against the supplier for a $12,000 minimum fee and 50% of any award over $35,000. Possible court awards with their associated probabilities are: ward Probability $75, $0 0.4 ompared to accepting the supplier s offer, what is the expected value for Wyatt of taking the matter to court? $4,000 loss $18,200 gain $21,000 gain $38,000 gain 7.4 allara runs an office sandwich delivery service. He orders sandwiches at the start of each day for 45 cents each and takes them round to local offices where he sells them for 75 cents. ny unsold sandwiches are thrown away. Possible levels of daily demand are as follows: emand Probability evry/ecker Educational evelopment orp. ll rights reserved. 9

19 FINNIL MNGEMENT (F9) STUY MULTIPLE HOIE QUESTION NK How many sandwiches should be ordered each day to maximise long-term profit? The annual sales volume and the contribution per unit of a new product are uncertain. Estimates for these two variables are as follows: Sales volume Probability ontribution Probability (units) 80, $ , $ , The sales volume and contribution per unit can be assumed to be independent. If the annual fixed costs are $130,000, what is the probability that the company will make a loss? Equity Finance 8.1 firm s current share price is $4. The company then makes a 2 for 3 rights issue at an issue price of $2. What is the theoretical ex-rights price? $2 50 $2 80 $3 00 $ company makes a rights issue and the following prices apply: urrent share price $10 Rights issue price $6 Theoretical ex-rights price $9 What were the terms of the rights issue? 1 for 3 3 for 1 1 for 4 4 for evry/ecker Educational evelopment orp. ll rights reserved.

20 STUY MULTIPLE HOIE QUESTION NK FINNIL MNGEMENT (F9) 8.3 What effect would making a scrip issue of shares have? ecreases the debt/equity ratio of the company ecreases earnings per share Increases individual shareholder wealth Increases the market price of the share 8.4 Sutton o has announced a 1 for 3 rights issue at $2 per share. The current share price is $3.04. What is the theoretical value of one right per existing share? $0.26 $0.35 $0.78 $ company, whose shares currently sell at $75 each, plans to make a rights issue of one share at $60 for every four existing shares. What is the theoretical ex-rights price of the shares after the issue? $75.00 $72.00 $67.50 $ ebt Finance 9.1 For what reason would a firm issue convertible debt? It is cheaper to service than ordinary debt Sales and earnings are expected to fall over the next few years If conversion takes place, it will not change the firm s financial gearing ratio If conversion takes place, it will generate additional finance for the firm 9.2 company is evaluating the advantages and disadvantages of short-term and long-term financing options. Which of the following two characteristics are usually true? Short-term financing Long-term financing Lower rollover risk Lower cost Higher rollover risk Higher cost Lower rollover risk Higher cost Higher rollover risk Lower cost 9.3 Which of the following best describes the term coupon rate as applied to bonds? The annual interest paid on the face value of the bond The annual interest divided by the current market price of the bond The total return on a bond, taking into account capital repayment as well as interest payments The annual interest paid on the market price of the bond 2014 evry/ecker Educational evelopment orp. ll rights reserved. 11

21 FINNIL MNGEMENT (F9) STUY MULTIPLE HOIE QUESTION NK 9.4 Which one of the following best describes a participating preference share? preference share which has the right to be converted into ordinary shares at some future date preference share which entitles to the holder to a guaranteed minimum dividend with the possibility of an additional amount preference share which carries forward the right to dividends, if unpaid, from one year to the next preference share which entitles the shareholder to a fixed rate of dividend 9.5 Which of the following are reasons why a company may prefer debt financing to equity financing? (1) ebt, unlike equity finance, will not need to be secured against assets (2) ebt can be raised for finite time periods (3) ebt finance can be raised more quickly than equity finance (4) Interest payments are tax-deductible 1, 2 and 3 only 2, 3 and 4 only 1, 3 and 4 only 1, 2 and 4 only 10 Security Valuation and ost of apital 10.1 avis wants to buy shares of Epoch o. If avis uses a zero growth model, a required rate of return of 20% and an annual dividend of $10, what is Epoch s share price? $2 $20 $50 $ If rewer o s bonds have a yield to maturity (gross redemption yield) of 8%, why would the company s cost of debt be lower? Market interest rates have increased dditional debt can be issued more cheaply that the original debt Interest is deductible for tax purposes There is a mixture of old and new debt 10.3 Which capital structure theory suggests that the weighted average cost of capital (W) will initially decrease, reach a minimum and then increase? Pecking order theory The traditional trade-off view Modigliani and Miller without tax Modigliani and Miller with tax evry/ecker Educational evelopment orp. ll rights reserved.