MBA 702 Final Exam Questions and All
Correct Answers.
The information content effect implies that stock prices will rise when dividends are increased
provided that the dividend increase:
Select one or more:
a. is greater than the average historical dividend increase
b. is substantial in both dollar amount and percentage terms
c. is combined with a stock repurchase
d. causes stockholders to increase their expectations of future cash flows - Answer d. causes
stockholders to increase their expectations of future cash flows
Financial executives place the greatest importance on which one of these factors when setting
dividend policy?
Select one or more:
a. reducing dividends anytime future earnings are in doubt
b. increasing dividends even if they need to be lowered in the near future
c. attracting institutional investors
d. setting a high-dividend payout ratio even when earnings are unstable
e. maintaining a consistent dividend policy - Answer e. maintaining a consistent dividend
policy
Which one of these is most related to a positive covenant?
Select one or more:
a. avoiding a merger while a debt remains unpaid
b. furnishing financial statements to the firm's lenders
c. selling any major assets without lender approval
d. limiting the amount of the firm's dividends
, e. not issuing any additional long-term debt - Answer b. furnishing financial statements to
the firm's lenders
All else held constant, which one of these is most apt to increase the WACC of a leveraged firm?
Select one or more:
a. a decrease in the dividend growth rate
b. an increase in the risk-free rate when the equity beta > 1
c. a decrease in a firm's equity beta
d. an increase in the weight of debt
e. a decrease in the tax rate - Answer e. a decrease in the tax rate
According to the pecking-order theory, a firm's leverage ratio is determined by:
Select one or more:
a. the value of the tax benefit of debt.
b. the market rate of interest.
c. the firm's financing needs.
d. equating the tax benefit of debt to the financial distress costs of debt.
e. the profitability of the firm. - Answer c. the firm's financing needs.
A stock with an actual return that lies above the security market line has:
Select one or more:
a. more risk than warranted based on the realized rate of return.
b. more systematic risk than the overall market.
Correct Answers.
The information content effect implies that stock prices will rise when dividends are increased
provided that the dividend increase:
Select one or more:
a. is greater than the average historical dividend increase
b. is substantial in both dollar amount and percentage terms
c. is combined with a stock repurchase
d. causes stockholders to increase their expectations of future cash flows - Answer d. causes
stockholders to increase their expectations of future cash flows
Financial executives place the greatest importance on which one of these factors when setting
dividend policy?
Select one or more:
a. reducing dividends anytime future earnings are in doubt
b. increasing dividends even if they need to be lowered in the near future
c. attracting institutional investors
d. setting a high-dividend payout ratio even when earnings are unstable
e. maintaining a consistent dividend policy - Answer e. maintaining a consistent dividend
policy
Which one of these is most related to a positive covenant?
Select one or more:
a. avoiding a merger while a debt remains unpaid
b. furnishing financial statements to the firm's lenders
c. selling any major assets without lender approval
d. limiting the amount of the firm's dividends
, e. not issuing any additional long-term debt - Answer b. furnishing financial statements to
the firm's lenders
All else held constant, which one of these is most apt to increase the WACC of a leveraged firm?
Select one or more:
a. a decrease in the dividend growth rate
b. an increase in the risk-free rate when the equity beta > 1
c. a decrease in a firm's equity beta
d. an increase in the weight of debt
e. a decrease in the tax rate - Answer e. a decrease in the tax rate
According to the pecking-order theory, a firm's leverage ratio is determined by:
Select one or more:
a. the value of the tax benefit of debt.
b. the market rate of interest.
c. the firm's financing needs.
d. equating the tax benefit of debt to the financial distress costs of debt.
e. the profitability of the firm. - Answer c. the firm's financing needs.
A stock with an actual return that lies above the security market line has:
Select one or more:
a. more risk than warranted based on the realized rate of return.
b. more systematic risk than the overall market.
