MBA 701 FINAL EXAM QUESTIONS AND
CORRECT ANSWERS.
Which one of the following is an argument in favor of a low dividend policy?
The tax on capital gains is deferred until the gain is realized
reverse stock split
reverse stock split consolidates the existing shares into higher-priced fewer, shares. While share
price increases proportionally, the total market value of company remains same.
Liquidating Dividend
is the Dividend which is paid to the shareholders while liquidation
Stock Dividend
the Stock Dividend is the payment in which dividends are paid in form of new shares.
Extra dividend
The extra dividend is the special payment which is different from regular payment and it is
generally larger then regular dividend.
Normal Dividend
The Normal dividend is paid to the shareholders periodically. It can be quarterly or annually
The date before which a new purchaser of stock is entitled to receive a declared dividend,
but on or after which she does not receive the dividend, is called the _____ date.
Ex-dividend date is the date before which the purchaser of the stock can receive the dividend. If
the new purchaser buys the stock after ex-dividend date, he /she may will not entitle to receive
the dividend. the declared dividend will be paid to the last holder of the stock before this
purchase.
One of the indirect costs of bankruptcy is the incentive for managers to take large risks.
When following this strategy:
, Stockholders expropriate value from bondholders by selecting high-risk projects.
The free cash flow hypothesis states that:
issuing debt requires payments to creditors thereby reducing the ability of managers to waste
resources.
MM Proposition II is the proposition that
A firm's cost of equity capital is a positive linear function of the firm's capital structure.
MM Proposition II indicates that as a firm increases its debt, the cost of equity will also rise,
reflecting the increased risk to equity holders of having more debt.
the use of leverage
Increases the equity beta but does not affect the asset beta.
When a firm uses leverage, the risk (or beta) for equity holders increases since they bear the
brunt of the debt risk, but the overall asset risk remains unchanged.
The interest tax shield is a key reason why:
the net cost of debt to a firm is generally less than the cost of equity.
milking the property
A firm with high financial distress paying additional dividends.
MM Proposition I with no tax supports the argument that:
it is completely irrelevant how a firm arranges its finances.
assume lsus corporation is similar to its industry with one exception, it has high fixed costs
relative to all other firms in that industry. Given this, you should expect LSUS corporation:
To have a lower beta than its industry
standard deviation measures ___ risk while beta measures ___ risk
total systematic risk
Standard deviation is
CORRECT ANSWERS.
Which one of the following is an argument in favor of a low dividend policy?
The tax on capital gains is deferred until the gain is realized
reverse stock split
reverse stock split consolidates the existing shares into higher-priced fewer, shares. While share
price increases proportionally, the total market value of company remains same.
Liquidating Dividend
is the Dividend which is paid to the shareholders while liquidation
Stock Dividend
the Stock Dividend is the payment in which dividends are paid in form of new shares.
Extra dividend
The extra dividend is the special payment which is different from regular payment and it is
generally larger then regular dividend.
Normal Dividend
The Normal dividend is paid to the shareholders periodically. It can be quarterly or annually
The date before which a new purchaser of stock is entitled to receive a declared dividend,
but on or after which she does not receive the dividend, is called the _____ date.
Ex-dividend date is the date before which the purchaser of the stock can receive the dividend. If
the new purchaser buys the stock after ex-dividend date, he /she may will not entitle to receive
the dividend. the declared dividend will be paid to the last holder of the stock before this
purchase.
One of the indirect costs of bankruptcy is the incentive for managers to take large risks.
When following this strategy:
, Stockholders expropriate value from bondholders by selecting high-risk projects.
The free cash flow hypothesis states that:
issuing debt requires payments to creditors thereby reducing the ability of managers to waste
resources.
MM Proposition II is the proposition that
A firm's cost of equity capital is a positive linear function of the firm's capital structure.
MM Proposition II indicates that as a firm increases its debt, the cost of equity will also rise,
reflecting the increased risk to equity holders of having more debt.
the use of leverage
Increases the equity beta but does not affect the asset beta.
When a firm uses leverage, the risk (or beta) for equity holders increases since they bear the
brunt of the debt risk, but the overall asset risk remains unchanged.
The interest tax shield is a key reason why:
the net cost of debt to a firm is generally less than the cost of equity.
milking the property
A firm with high financial distress paying additional dividends.
MM Proposition I with no tax supports the argument that:
it is completely irrelevant how a firm arranges its finances.
assume lsus corporation is similar to its industry with one exception, it has high fixed costs
relative to all other firms in that industry. Given this, you should expect LSUS corporation:
To have a lower beta than its industry
standard deviation measures ___ risk while beta measures ___ risk
total systematic risk
Standard deviation is
