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Multiple Choice Questions 1.When a firm has no debt, then such

Question : Multiple Choice Questions 1.When a firm has no debt, then such : 1409505

 

Multiple Choice Questions
 

1.When a firm has no debt, then such a firm is known as:
I) an unlevered firm; II) a levered firm; III) an all-equity firm 
 
 

A. I only

B. II only

C. III only

D. I and III only

2.The capital structure of the firm can be defined as:

I) the firm's mix of different debt securities;
II) the firm's mix of different securities used to finance assets;
III) the market imperfection that the firm's managers can exploit 
 
 

A. I only

B. II only

C. III only

D. I, II, and III

3.The total market value (V) of the securities of a firm that has both debt (D) and equity (E) is: 
 
 

A. V = D - E

B. V = E - D

C. V = D × E

D. V = D + E

4.If a firm is financed with both debt and equity, the firm's equity is known as: 
 
 

A. unlevered equity.

B. levered equity.

C. preferred equity.

D. none of the options.

5.Under what conditions would a policy of maximizing the value of the firm not be the same as a policy of maximizing shareholders' wealth? 
 
 

A. If the issue of debt increases the financial risk of the firm's equity

B. If the firm issues debt for the first time

C. If the beta of equity is positive

D. If an issue of debt affects the market value of existing debt

6.A policy of maximizing the value of the firm is the same as a policy of minimizing the weighted average cost of capital providing that:

I) the firm's investment policy is settled;
II) there are no taxes;
III) an issue of new debt does not affect the market value of existing debt 
 
 

A. I only

B. II only

C. III only

D. I, II, and III

7.Modigliani and Miller's Proposition I states that: 
 
 

A. the market value of any firm is independent of its capital structure

B. the market value of a firm's debt is independent of its capital structure

C. the market value of a firm's common stock is independent of its capital structure

D. none of the options

8.An investor can create the effect of leverage on his/her account by:
I) buying equity of an unlevered firm; II) investing in risk-free debt like T-bills; III) borrowing on his/her own account 
 
 

A. I only

B. II only

C. III only

D. I and III only

9.If firm U is unlevered and firm L is levered, then which of the following is true:

I) VU = EU.
II) VL = EL + DL.
III) VL = EU + DL. 
 
 

A. I only

B. I and II only

C. I, II, and III

D. III only

10.If an investor buys a portion (X) of an unlevered firm's equity, then his/her payoff is: 
 
 

A. (X) × (profits)

B. (X) × (interest)

C. (X) × (profits - interest)

D. (1/X) × (profits)

 

 

Solution
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