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11.If an investor buys a portion (X) of both the

Question : 11.If an investor buys a portion (X) of both the : 1409506

 

11.If an investor buys a portion (X) of both the debt and equity of a levered firm, then his/her payoff is: 
 
 

A. (X) × (profits)

B. (X) × (interest)

C. (X) × (profits - interest)

D. none of the options

12.If an investor buys a portion (X) of the equity of a levered firm, then his/her payoff is: 
 
 

A. (X) × (profits)

B. (X) × (interest)

C. (X) × (profits - interest)

D. (1/X) × (profits - interest)

13.The law of conservation of value implies that: 
 
 

A. the return on a firm's common stock is unchanged when debt is added to its capital structure.

B. the value of any asset is preserved regardless of the nature of the claims against it.

C. the return on a firm's debt is unchanged when common stock is added to its capital structure.

D. the value of an asset increases as debt is reduced.

14.An investor can undo the effect of leverage on his/her own account by:
I) investing in the equity of a levered firm; II) borrowing on his/her own account; III) investing in risk-free debt like T-bills 
 
 

A. I only

B. II only

C. III only

D. I and III above

15.If an individual wants to borrow with limited liability, he/she should: 
 
 

A. invest in the equity of an unlevered firm.

B. borrow on his/her own account.

C. invest in the equity of a levered firm.

D. invest in a risk-free asset like T-bills.

16.Value additivity works for:
I) combining assets; II) splitting up of assets; III) the mix of debt securities issued by the firm 
 
 

A. I only

B. II only

C. I and II only

D. I, II, and III

17.The law of conservation of value implies that:

I) the mix of senior and subordinated debt does not affect the value of the firm;
II) the mix of convertible and nonconvertible debt does not affect the value of the firm;
III) the mix of common stock and preferred stock does not affect the value of the firm 
 
 

A. I only

B. II only

C. III only

D. I, II, and III

18.The law of conservation of value implies that:

I) the mix of common stock and preferred stock does not affect the value of the firm;
II) the mix of long-term and short-term debt does not affect the value of the firm;
III) the mix of secured and unsecured debt does not affect the value of the firm 
 
 

A. I only

B. II only

C. III only

D. I, II, and III

19.Capital structure is irrelevant if:

I) capital markets are efficient;
II) each investor can borrow/lend on the same terms as the firm;
III) there are no tax benefits to debt 
 
 

A. I only

B. II only

C. III only

D. I, II, and III

20.For a levered firm: 
 
 

A. as earnings before interest and taxes (EBIT) increases, earnings per share (EPS) increases by the same percentage.

B. as EBIT increases, EPS increases by a larger percentage.

C. as EBIT increases, EPS decreases by the same percentage.

D. as EBIT increases, EPS decreases by a larger percentage.

 

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