9. Small company stocks have historically outperformed large company stocks. Fin:a theory would suggest this is because, what? a. Smaller stocks cost more. b. Smaller stocks trade at higher P/E ratios. c. Smaller stocks are riskier. d. All of the above. e. None of the above. 10. Company A has a P/E ratio of 30. Company B has a P/E ratio of 10. What might account for these differences? a. Company A is expected to grow faster than Company B b. Company A has more predictable cash flows and earnings compared to Company B (That is, Company A's business is less risky) c. Company A has a higher dividend yield than Company B d. All of the above e. A&B only. 11. A company with less debt has more financial flexibility than one with greater debt, all else equal, since the less leveraged firm has more choices of how it might fund future projects and it has more opportunities to take on more (or larger) projects than its similarly higher leveraged firm. a. True b. False 12. A firm that takes on additional debt becomes riskier for what reasons? a. It must make interest (and usually principal) payments on debt regardless of economic or business circumstances. This can magnify the variability of cash flows available to equity investors b. All else equal, a firm that increases its debt will see an increase in its beta c. All of the above. d. None of the above 13. For bondholders, interest rate risk arises from fluctuating interest rates. Assuming all else is equal, what can we say about interest rate risk for bonds? a. The longer the time to maturity, the lower the interest rate risk b. The longer the time to maturity, the greater the interest rate risk c. The lower the coupon rate, the lower the interest rate risk d. The lower the coupon rate, the greater the interest rate risk e. A & C only f. B& D only 14. A pro forma financial statement is an estimated future financial statement. a. True b. False 15. A bond backed by collateral will, all else equal, have? a. b. c. A higher interest rate A lower interest rate. Not enough information. 16. Risk is an important component of the overall cost of debt. Which of the following types of firms would have the higher cost of debt due to a higher default risk premium? a. b. c. One that has very little debt, a lot of cash and a stable business One that has a lot of debt, very little cash and a risky business. Not enough information