Question 2

According to the static theory of capital structure, a firm borrows up to which one of the following points?

		point where the firm is financed totally with debt
		point where an additional dollar of debt would have a benefit exactly equal to its cost
		point where WACC equals the debt-equity ratio
		point where the debt-equity ratio equals 1.0

Question 3

According to M&M Proposition I with taxes, the value of a levered firm is equal to the value of the unlevered firm plus which one of the following?

current market value of the debt

par value of the debt

present value of the depreciation tax shield

present value of the interest tax shield

Question 4

Which one of the following is the equity risk arising from the daily operations of a firm?

		Business risk
		Financial risk
		Operating risk
		Strategic risk