When an investor borrows additional funds to buy shares, she is implementing ____________________.

Select one:

a. sound financial risk management.

b. home-made leverage.

c. M&M Proposition, Part II.

d. M&M Proposition, Part I.

In a world without taxes (and without many other financial frictions), M&M Proposition I suggests that ...

Select one:

a. there is a unique, optimal amount of debt.

b. firm value increases in the use of debt.

c. firm value decreases in the use of debt.

d. firm value is unaffected by the use of debt.

In a world with taxes and bankruptcy costs, the static theory of capital structure suggests that ...

Select one:

a. firm value is unaffected by the use of debt.

b. firm value increases in the use of debt.

c. firm value is maximized when WACC is minimized.

d. firm value decreases in the use of debt.

Financial risk is defined as

Select one:

a. the equity risk that is due to the normal business operations of the firm.

b. the equity risk that is due to capital structure of the firm.

c. investment risk in the financial market assets of the firm.

d. credit risk of the firm.

Which of these statements is related to the Hamada Equation?

Select one:

a. The equity beta is a linear function of leverage.

b. Firm value decreases in the use of debt.

c. There is a unique, optimal amount of debt.

d. Firm value is unaffected by the use of debt.

For which of these industries would you expect the highest average leverage ratios, based on Australia data?

Select one:

a. Utilities

b. Materials

c. Information technology

d. Real estate