Fin 571-3 - FIN 571 1) Whenever a firm splits itself into...

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FIN 571 1) Whenever a firm splits itself into separate units, with each unit having limited liability with respect to its financing, the capital structure of each unit becomes __________ A. an irrelevant consideration for a cost of capital. B. the relevant consideration for a cost of capital. C. important only if the firm faces financial distress. D. none of these 2) An investor's risky portfolio is made up of individual stocks. Which of the following statements about this portfolio is true? A. Each stock in the portfolio will have a beta greater than one. B. Selling any stock in this portfolio will lower the beta of the portfolio. C. An investor cannot change the risk of this portfolio by her choice about personal leverage (lending or borrowing). D. Each stock in the portfolio has its own beta. 3) An all-equity-financed firm would __________. A. not pay any income taxes because interest would exactly offset its taxable income. B. pay corporate income taxes if its taxable income is positive. C. pay corporate income taxes because it would have interest expense. D. not pay corporate income taxes because it would have no interest expense. 4) The capital budgeting process can be broken down into five steps. These steps include which of the following? A. Generate ideas for capital budgeting projects B. Prepare proposals C. Review existing projects and facilities D. all of these 5) Projects can be classified into various categories. These include: A. maintenance expenditures projects that involve replacing worn-out or damaged equipment. B. that include improvements in production technology to realize cost savings and marketing campaigns to achieve revenue enhancement. C. capacity expansion projects that involve expanding the current business by adding new equipment and facilities. D. all of these 6) Boeing Corporation is a world leader in commercial aircraft. In the face of competition, Boeing often faces a critical decision: whether to develop a new generation of passenger aircraft. A. dividend B. payback C. capital budgeting D. present value
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FIN 571 7) A firm cannot simply adopt the industry average debt ratio, because differences exist among firms in any particular industry with respect to __________. A. tax position. B. size. C. competitive position. D. all of these 8) Studies show systematic differences in capital structures across industries. These are due mostly to differences in __________. A. hiring and firing practices. B. the availability of tax shelter provided by things other than debt, such as accelerated depreciation, investment tax credit, and operating tax loss carryforwards. C. what the arbitrage pricing theory tells us. D. none of these 9) Studies show systematic differences in capital structures across industries. These are due mostly to differences in the availability of tax shelter provided by things other than debt, such as __________. A. accelerated depreciation.
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Fin 571-3 - FIN 571 1) Whenever a firm splits itself into...

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