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True / False Questions 57.The firm's mix of securities used to

Question : True / False Questions 57.The firm's mix of securities used to : 1409511

 

True / False Questions
 

57.The firm's mix of securities used to finance its assets is called the firm's capital structure. 
 
 

58.The principle of value additivity holds for the aggregation of assets but does not apply to the division of assets. 
 
 

59.The law of conservation of value does not apply to the mix of a firm's debt securities. 
 
 

60.Modigliani and Miller's Proposition I states that the market value of any firm is independent of its capital structure. 
 
 

61.According to Modigliani and Miller Proposition II, the rate of return required by debtholders linearly increases as the firm's debt-equity ratio increases. 
 
 

62.Modigliani and Miller Proposition II states that the rate of return required by shareholders increases steadily as the firm's debt-equity ratio increases. 
 
 

63.According to Modigliani and Miller Proposition II, the cost of equity increases as more debt is issued, but the weighted average cost of capital remains unchanged. 
 
 

64.Financial leverage increases the expected return and risk of the shareholder. 
 
 

65.Investors require higher returns on levered equity than on equivalent unlevered equity. 
 
 

66.According to Modigliani and Miller Proposition II, the firm's expected return on assets depends on several factors including the firm's capital structure. 
 
 

67.A firm's asset beta equals the weighted average of the betas on its debt and equity, given the assumption of no taxes. 
 
 

68.According to Modigliani and Miller Proposition II, since the expected rate of return on debt is less than the expected rate of return on equity, the weighted average cost of capital declines as more debt is issued. 
 
 

69.MM's Proposition is violated when the firm, by imaginative design of its capital structure, can offer some financial service that meets the unmet needs of such a clientele. 
 
 

70.The firm's asset beta is usually higher than the firm's equity beta. 
 
 

71.The firm's debt beta is usually approximately 1.0. 
 
 

 

 

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