1. Which type of beta is the easiest to observe (infer)?

a. Equity

b. Asset

c. Debt

2. For two firms with the same asset beta, firm with a higher equity beta and therefore a higher expected equity return is the firm with less leverage (debt).

a. True

b. False

3. A firm's asset beta depends o its leverage (capital structure).

a. True

b. False

4. Match the appropriate discount rate with the quantity being discounted.

(1) Dividend

a. Cost of Debt

b. Cost of Equity

c. WACC

(2) Cash Flow (unlevered)

a. Cost of Debt

b. Cost of Equity

c. WACC

5. Which one of the following corporate payouts will reduce the stock price?

a. Dividend

b. Share Repurchase

c. bond Coupon

6. When using the perpetuity formula, the growth rate in the denominator always refers to growth in the firm's dividend?

a. True

b. False

7. A firm's payout decisions regarding dividend issuance and / or shares repurchases do not affect its capital structure?

a. True

b. False

8. Managers compensated with equity (???) likely to accept a positive NPV investment when the highly-levered firm is in financial distress (credit rating junk) in order to save the firm?

a. Less

b. More