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.
15. Risk that affects a large number of assets, each to a greater or lesser degree,
is called _____ risk. - ANSWER-systematic
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.
15. Risk that affects a large number of assets, each to a greater or lesser degree,
is called _____ risk. - ANSWER-systematic
