Question

QUESTION 21

One implication of the tradeoff theories of capital structure decision is that firms that are likely to pay taxes at high rates should carry more debt than firms in lower tax brackets.

True

False

1.00000 points   

QUESTION 22

One implication of the tradeoff theories of capital structure decision is that risky firms, as measures by the variability of asset returns, ought to borrow more, other things equal.

True

False

1.00000 points   

QUESTION 23

The pecking order theory of capital structure is based on the asymmetric information theory that the announcement of a stock offering by a mature firm is taken as a signal that the firm's prospects as seen by its management are not bright.

True

False

1.00000 points   

QUESTION 24

One implication of the pecking order theory of capital structure is that profitable firms have more debt because they don't need outside money.

True

False

1.00000 points   

QUESTION 25

One would normally expect the price of stock to go up by approximately the amount of the dividend on the ex-dividend date.

True

False

1.00000 points   

QUESTION 26

One implication of the clientele effect is that high-tax-bracket investors tend to hold relatively high dividend-yield stocks.

True

False

1.00000 points   

QUESTION 27

It was found that stock prices tend to increase after announcements of stock repurchase by tender offer.

True

False

1.00000 points   

QUESTION 28

________ are the markets in which corporations raise new capital.

		Primary markets
		Secondary markets
		Money markets
		Mortgage markets

1.00000 points   

QUESTION 29

_________ are the markets for short-term debts.

		Capital markets
		Money markets
		Secondary markets
		Mortgage markets

1.00000 points   

QUESTION 30

Total cash flow or free cash flow is ____________________.

		without cost to the firm.
		net income plus taxes.
		an increase in net working capital.
		cash flow in excess of that required to fund profitable capital projects.
		None of the above.

1.00000 points   

QUESTION 31

The dividend growth rate is equal to the product of what two ratios?

		ROA, current ratio
		ROE, dividend payout ratio
		ROE, retention ratio
		PM, ROE

1.00000 points   

QUESTION 32

A reduction in the sales of an existing product caused by the introduction of a new product is an example of a(n) _________.

		sunk cost
		opportunity cost
		erosion cost
		fixed cost

1.00000 points   

QUESTION 33

An investor who wishes to form a portfolio that lies to the right of the optimal risky portfolio on the Capital Market Line has to

		lend some of her money at the risk-free rate and invest the rest in the optimal risky portfolio.
		borrow some money at the risk-free rate and invest it in the optimal risky portfolio
		invest only in the risky securities.
		hold a portfolio which is not diversified.

1.00000 points   

QUESTION 34

If other things remain the same, diversification is more effective when _________.

		securities returns are negatively correlated.
		securities returns are uncorrelated.
		securities returns are positively correlated.
		securities returns are high.

1.00000 points   

QUESTION 35

The optimal risky portfolio can be identified by finding .

		the minimum variance point on the efficient frontier
		the maximum return point on the efficient frontier
		the tangency point of the capital market line and the efficient frontier
		none of the above answers is correct.

1.00000 points   

QUESTION 36

The present value (PV) break-even point is better than the accounting break-even point because

		PV break-even point is the same as the sensitivity analysis
		PV break-even point covers the economic opportunity costs of the investment
		PV break-even point covers the fixed costs of production, which the accounting break-even point does not.
		PV break-even point covers the variable costs of production, which the accounting break-even point does not.

1.00000 points   

QUESTION 37

The date on which the right to the next dividend no longer accompanies a stock is called _________.

		declaration date
		holder-of-record date
		ex-dividend date
		payment date

1.00000 points   

QUESTION 38

Which of the following is not a hypothesis to explain the behavior of stock price after stock repurchases?

		Information or Signaling Hypothesis
		Leverage Hypothesis
		Tax Differential Hypothesis
		Efficient Market Hypothesis

Answer 1

21. true

22. False, Risky Firms ought to borrow less

23. True

24. True

25. True

26. False

27. True

28. Primary Market

29.Money Market

30.

cash flow in excess of that required to fund profitable capital projects 31. ROE, retention ratio 32.erosion cost 33.borrow some money at the risk-free rate and invest it in the optimal risky portfolio 34. when negatively correlated 35.the tangency point of the capital market line and the efficient frontie 36.PV break-even point covers the economic opportunity costs of the investment 37.ex-dividend date 38 Tax Differential Hypothesis