2201AFE_Tutorial_09

2201AFE_Tutorial_09 - 2201AFE Corporate Finance TOPIC:...

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2201AFE Corporate Finance TOPIC: Capital Structure Policy 25 Multiple-Choice Questions 1. The use of personal borrowing to change the overall amount of financial leverage to which an individual is exposed is called: a. homemade leverage. b. dividend recapture. c. the weighted average cost of capital. d. private debt placement. e. personal offset. 2. The proposition that the value of the firm is independent of its capital structure is called: a. the capital asset pricing model. b. c. d. the law of one price. e. the efficient markets hypothesis. 3. The proposition that the cost of equity is a positive linear function of capital structure is called: a. the capital asset pricing model. b. c. d. the law of one price. e. the efficient markets hypothesis. 4. The equity risk derived from a firm’s operating activities is called _____ risk. a. market b. systematic c. extrinsic d. business e. financial 5. The equity risk derived from a firm’s capital structure policy is called _____ risk. a. market b. systematic c. extrinsic d. business e. financial 6. The tax savings of the firm derived from the deductibility of interest expense is called the: a. interest tax shield. b. depreciable basis. c. financing umbrella. d. current yield. e. tax-loss carryforward savings.
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7. The unlevered cost of capital is: a. the cost of capital for a firm with no equity in its capital structure. b. the cost of capital for a firm with no debt in its capital structure. c. the interest tax shield times pretax net income. d. the cost of preferred stock for a firm with equal parts debt and common stock in its capital structure. e.
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2201AFE_Tutorial_09 - 2201AFE Corporate Finance TOPIC:...

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