Borrowing money to buy stock through a brokerage firm is known as what? Select one: O O O O O a. Buying stock through a brokered loan x b. Buying stock through a mortgage c. Buying stock through margin d. Buying stock through dividends e. A stock split How can an unlevered firm obtain financial leverage? Select one: O a. By issuing common stock O b. By issuing debt O c. By retaining its earnings in the firm O d. By investing in positive NPV investments x O e. By investing in negative NPV projects Which best defines the term "perfect markets"? Select one: O a. Markets that operate under highly restrictive assumptions such as zero taxes O b. Markets that offer the highest returns for a given level of risk x O c. Markets where levered firms have advantages versus unlevered firms O d. Markets where dividends are preferred to capital gains O e. Markets where firms will design elaborate capital structures such as Euro bonds The chapter on financial leverage uses "risk units" to illustrate what about financial leverage? Select one: O a. That firm value is maximized where the cost of capital is minimized. O b. That debt financing creates a tax shield and therefore lowers firm risk. O c. That the risk of the firm's assets cannot be changed by shifts in financial leverage. O d. That debt is risk free. O e. That for firms with leverage, the higher the EBIT, the higher is firm risk. x