Question 4 question bank id 269454 type multiple

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QUESTION: 4 [QUESTION BANK ID: 269454] CORRECT An implicit cost of adding debt to the capital structure is that it TYPE: MULTIPLE CHOICE << HIDE ANSWERS A Adds interest expense to the operating statement Increases the required return on equity Reduces the expected return on assets Decreases the firm's beta B C D
QUESTION: 5 [QUESTION BANK ID: 269602] CORRECT Currently, Powell Products has a beta of 1.0, and its sales and profits are positively correlated with the overall economy. The company estimates that a proposed new project would have a higher standard deviation and coefficient of variation than an average company project. Also, the new project’s sales would be countercyclical in the sense that they would be high when the overall economy is down and low when the overall economy is strong. On the basis of this information, which of the following statements is correct? TYPE: MULTIPLE CHOICE << HIDE ANSWERS B
C The proposed new project would increase the firm’s market risk D The proposed new project would not affect the firm’s risk at all E The proposed new project would have less stand-alone risk than the firm’s typical project QUESTION: 6 [QUESTION BANK ID: 269600] CORRECT Firm M is a mature firm in a mature industry. Its annual net income and net cash flows are both consistently high and stable. However, M’s growth prospects are quite limited, so its capital budget is small relative to its net income. Firm N is a relatively new firm in a new and growing industry. Its markets and products have not stabilized, so its annual operating income fluctuates considerably. However, N has substantial growth opportunities, and its capital budget is expected to be large relative to its net income for the foreseeable future. Which of the following statements is correct? TYPE: MULTIPLE CHOICE << HIDE ANSWERS B C D E
QUESTION: 7 [QUESTION BANK ID: 269603] TYPE: MULTIPLE CHOICE CORRECT

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