• The equity risk derived from a firm's capital structure policy is called _____ risk.

  1. market

  2. systematic

  3. business

  4. financial

MCQ

MCQS

MARKS : 1.0

• A levered firm is a company that has:

  1. has some debt in the capital structure.

  2. Accounts Payable as the only liability on the balance sheet.

  3. All of the above.

  4. has all equity in the capital structure.

MCQ

MCQS

MARKS : 1.0

• If a company issues 52,500 rupees worth of debt and has a corporate tax rate of 35%, what is the PV of the debt tax shield?

  1. 18375

  2. 22425

  3. 34125

  4. 52500

MCQ

MCQS

MARKS : 1.0

• Higher operating leverage is related to the use of additional __________.

  1. debt financing

  2. fixed costs

  3. common equity financing

  4. variable costs

MCQ

MCQS

MARKS : 1.0

• Brandi Co. has a beta of 1.00. The firm currently has 30% debt, but is considering changing its capital structure to be 20% debt and 80% equity. If its corporate tax rate is 40%, what is Brandis levered beta at 20% debt level?

  1. 1.75

  2. 1.19

  3. 0.91

  4. 1.01

MCQ

MCQS

MARKS : 1.0

• MM Proposition I with corporate taxes states that:

  1. by raising the debt-to-equity ratio, the firm can lower its taxes and thereby increase its total value.

  2. firm value is maximized at an all debt capital structure.

  3. All of the above

  4. capital structure can affect firm value.

MCQ

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MARKS : 1.0

• A firm should select the capital structure that:

  1. is fully unlevered.

  2. minimizes taxes.

  3. produces the highest cost of capital.

  4. maximizes the value of the firm.

MCQ

MCQS

MARKS : 1.0

• MM Proposition I with no tax supports the argument that:

  1. it is completely irrelevant how a firm arranges its finances.

  2. a firm should borrow money to the point where the tax benefit from debt is equal to the cost of the increased probability of financial distress.

  3. the cost of equity rises as leverage rises.

  4. business risk determines the return on assets.

MCQ

MCQS

MARKS : 1.0

• Which of the following is true for leveraged beta?

  1. Leveraged beta represents financial risk from leverage.

  2. Leveraged beta represents fundamental operational risk plus financial risk from leverage.

  3. Leveraged beta represents fundamental operational risk minus financial risk from leverage.

  4. Leveraged beta represents fundamental operational risk.

MCQ

MCQS

MARKS : 1.0

• Which one of the following projects -- A, B, C, or D -- should be accepted? The expected return on the market is 16% and the risk-free rate is 6%.

  1. Project C, which has a beta of 1.25 and has an expected return of 18.2%.

  2. Project B, which has a beta of 2.50 and has an expected return of 25.4%.

  3. Project D, which has a beta of 1.00 and has an expected return of 15.8%.

  4. Project A, which has a beta of 0.50 and has an expected return of 11.2%.