This preview shows page 1. Sign up to view the full content.
Unformatted text preview: where no leverage is present, other things held constant. A. True B. False 11. Financial leverage affects both EPS and EBIT, while operating leverage only affects EBIT. A. True B. False 1. Assume that the equity beta for an all equity (unlevered) firm is 1.0. Assume now that the firm changes its capital structure to 50% debt and 50% equity, using 8% debt financing, and a tax rate of 40%. You may also assume that the beta for debt is zero. Given these conditions, which of the following statements is most correct? A. The beta of the firms equity will increase. B. The beta of the firms underlying assets will increase. C. The beta of the firms equity will decrease. D. The beta of the firms underlying assets will decrease. E. The beta of the firms equity will remain unchanged. 2. Which of the following statements is incorrect (least correct )?...
View Full Document
- Spring '08