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Consider the following statements about a firm (3 marks): I. II. The debt beta of a firm is usually quite low. If we assume that
Consider the following statements about a firm (3 marks): I. II. The debt beta of a firm is usually quite low. If we assume that the debt beta is zero, the equity beta of a firm must exceed the asset beta of the firm. If the WACC is used to evaluate a project that is more risky than the other operations of the firm, then there is a chance that a project will be rejected incorrectly Shareholders, as residual claimants to the profits of a firm, tend to remain owners of highly leveraged firms when they feel that the benefits of the tax deductibility of interest payments to their creditors outweighs the risk of bankruptcy. a III. It is apparent that a) only statement I is true. b) only statement II is true. c) only statement III is true. d) only statements I and II are true. e) only statements I and III are true
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