MBA 702 LSUS
The problem that results from using the overall firm's beta in discounting projects of
differing risk levels is the: - answer acceptance of too many high-risk projects and
rejection of too many low risk projects
The increase in risk to shareholders when financial leverage is introduced is best
evidenced by: - answera higher variability of EPS with debt than with all-equity financing
Which one of the following statements is correct concerning the standard deviation of a
portfolio? - answer The standard deviation of a portfolio can often be lowered by
changing the weights of the securities in the portfolio
The weighted average cost of capital for a firm is the: - answer overall rate which the
firm must earn on its existing assets to maintain its value
MM Proposition I without taxes proposes that: - answer leverage does not affect the
value of the firm
As we add more diverse securities to a portfolio, the ____ risk of the portfolio will
decrease while the _____ risk will not. - answertotal; systematic
Which one of the following is the best example of systematic risk? - answerthe Federal
Reserve increases interest rates
According to the clientele effect, firms can only boost their stock price: - answerif an
unsatisfied clientele group exists
The average compound return earned per year over a multi-year period is called the
_____ average return. - answergeometric
Which one of the following is a correct ranking of securities based on their volatility over
the period of 1926 to 2014? Rank from highest to lowest. - answersmall-company
stocks, large-company stocks, long-term corporate bonds
The optimal capital structure has been achieved when the: - answerdebt-equity ratio
selected results in the lowest possible weighed average cost of capital
All else held constant, which one of these is most apt to increase the WACC of a
leveraged firm? - answera decrease in the tax rate
MM Proposition II is the proposition that: - answera firm's cost of equity capital is a
positive linear function of the firm's capital structure
The problem that results from using the overall firm's beta in discounting projects of
differing risk levels is the: - answer acceptance of too many high-risk projects and
rejection of too many low risk projects
The increase in risk to shareholders when financial leverage is introduced is best
evidenced by: - answera higher variability of EPS with debt than with all-equity financing
Which one of the following statements is correct concerning the standard deviation of a
portfolio? - answer The standard deviation of a portfolio can often be lowered by
changing the weights of the securities in the portfolio
The weighted average cost of capital for a firm is the: - answer overall rate which the
firm must earn on its existing assets to maintain its value
MM Proposition I without taxes proposes that: - answer leverage does not affect the
value of the firm
As we add more diverse securities to a portfolio, the ____ risk of the portfolio will
decrease while the _____ risk will not. - answertotal; systematic
Which one of the following is the best example of systematic risk? - answerthe Federal
Reserve increases interest rates
According to the clientele effect, firms can only boost their stock price: - answerif an
unsatisfied clientele group exists
The average compound return earned per year over a multi-year period is called the
_____ average return. - answergeometric
Which one of the following is a correct ranking of securities based on their volatility over
the period of 1926 to 2014? Rank from highest to lowest. - answersmall-company
stocks, large-company stocks, long-term corporate bonds
The optimal capital structure has been achieved when the: - answerdebt-equity ratio
selected results in the lowest possible weighed average cost of capital
All else held constant, which one of these is most apt to increase the WACC of a
leveraged firm? - answera decrease in the tax rate
MM Proposition II is the proposition that: - answera firm's cost of equity capital is a
positive linear function of the firm's capital structure
