MBA 702 EXAM 3 CONCEPT QUESTIONS
WITH ACCURATE ANSWERS
/GUARANTEED SUCCESS
1. A payment made by the LSUS Corproation to its owners in the
form of new shares of stock is called a _____ dividend. -
ANSWER-stock
2. A stock with an actual return that lies above the security
market line has: - ANSWER-yielded a higher return than
expected for the level of risk assumed.
3. According to the clientele effect, firms can only boost their
stock price: - ANSWER-if an unsatisfied clientele group exists
4. According to the pecking-order theory, a firm's leverage ratio
is determined by: - ANSWER-the firm's financing needs.
5. All else held constant, which one of these is most apt to
increase the WACC of a leveraged firm? - ANSWER-a decrease
in the tax rate
6. As we add more diverse securities to a portfolio, the ____ risk of
the portfolio will decrease while the _____ risk will not. -
ANSWER-total; systematic
7. Assume LSUS Corproation 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 Corproation -
ANSWER-a higher beta than its industry.
8. Capital market history shows us that a correct ordering of the
average arithmetic mean return for asset classes, from lowest
to highest, is: - ANSWER-U.S. Treasury bills, government
bonds, corporate bonds, large-company stocks.
9. Financial executives place the greatest importance on which
one of these factors when setting dividend policy? - ANSWER-
maintaining a consistent dividend policy
10. MM Proposition I with no tax supports the argument that:
- ANSWER-it is completely irrelevant how a firm arranges its
finances.T
11. MM Proposition I without taxes proposes that: - ANSWER-
leverage does not affect the value of the firm
12. MM Proposition II is the proposition that: - ANSWER-a
firm's cost of equity capital is a positive linear function of the
firm's capital structure
13. MM Proposition II is the proposition that: - ANSWER-the
cost of levered equity depends solely on the return on debt,
the debt-equity ratio, and the tax rate.
14. One of the indirect costs of bankruptcy is the incentive
for managers to take large risks. When following this strategy:
- ANSWER-stockholders expropriate value from bondholders by
selecting high-risk projects.
WITH ACCURATE ANSWERS
/GUARANTEED SUCCESS
1. A payment made by the LSUS Corproation to its owners in the
form of new shares of stock is called a _____ dividend. -
ANSWER-stock
2. A stock with an actual return that lies above the security
market line has: - ANSWER-yielded a higher return than
expected for the level of risk assumed.
3. According to the clientele effect, firms can only boost their
stock price: - ANSWER-if an unsatisfied clientele group exists
4. According to the pecking-order theory, a firm's leverage ratio
is determined by: - ANSWER-the firm's financing needs.
5. All else held constant, which one of these is most apt to
increase the WACC of a leveraged firm? - ANSWER-a decrease
in the tax rate
6. As we add more diverse securities to a portfolio, the ____ risk of
the portfolio will decrease while the _____ risk will not. -
ANSWER-total; systematic
7. Assume LSUS Corproation 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 Corproation -
ANSWER-a higher beta than its industry.
8. Capital market history shows us that a correct ordering of the
average arithmetic mean return for asset classes, from lowest
to highest, is: - ANSWER-U.S. Treasury bills, government
bonds, corporate bonds, large-company stocks.
9. Financial executives place the greatest importance on which
one of these factors when setting dividend policy? - ANSWER-
maintaining a consistent dividend policy
10. MM Proposition I with no tax supports the argument that:
- ANSWER-it is completely irrelevant how a firm arranges its
finances.T
11. MM Proposition I without taxes proposes that: - ANSWER-
leverage does not affect the value of the firm
12. MM Proposition II is the proposition that: - ANSWER-a
firm's cost of equity capital is a positive linear function of the
firm's capital structure
13. MM Proposition II is the proposition that: - ANSWER-the
cost of levered equity depends solely on the return on debt,
the debt-equity ratio, and the tax rate.
14. One of the indirect costs of bankruptcy is the incentive
for managers to take large risks. When following this strategy:
- ANSWER-stockholders expropriate value from bondholders by
selecting high-risk projects.
