final 3 fundamentals of corporate finance, 4th edition brealey
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ng break-even.
III. An increased degree of operating leverage.
IV. None of the above
A) I only
B) II only
C) III only
D) IV only
E) II and III only
43.Which of the following is (are) true concerning the accounting break-even point?
I. The net income is zero.
II. The net present value is zero.
III. The operating cash flow is zero.
IV. The internal rate of return is zero.
A) I only
B) I and IV only
C) II only
D) III only
E) II and IV only
44. All else the same, if you decrease fixed costs, which of the following will also
decline?
I. Operating leverage
II. Accounting break-even
III. Operating cash flow
IV. Cash flow break-even
A) I and II only
B) II and IV only
C) I, II, and III only
D) I, II, and IV only
E) I, II, III, and IV
45. Averaging the deviations from the mean for a portfolio of securities will:
A) compute the standard deviation.
B) compute the variance.
C) equal zero.
D) equal the number of securities in the portfolio.
E) equal the Beta
46. Which of the following are included in the market prices if the market is semi-strong
efficient?
I. All historical information
II. All insider information
III. All public information
IV. All information of any kind
A) I only
B) III only
C) I and III only
D) I, II, and III only
E) I, II, III, and IV
47. The slope of the security market line equals:
A) one.
B) beta.
C) beta x (Rm – Rf)
D) the market risk premium.
E) the expected return on the market portfolio.
48. Why is debt financing said to include a tax shield for the company?
A) Taxes are reduced by the amount of the debt.
B) Taxes are reduced by the amount of the interest.
C) Taxable income is reduced by the amount of the debt.
D) Tax expenses is Debt x (1 – Tax Rate)
E) Taxable income is reduced by the amount of the interest.
49. If a company’s WACC is less than the required return on equity, then the firm:
A) has debt in its capital structure.
B) is perceived to be less risky than most firms.
C) must have convertible debt.
D) cannot be using any debt.
E) is efficiently priced and lies on the SML.
50. The cost of capital in a firm that has both debt and equity __________.
A) Is equal to the cost of debt or equity, depending on which type of financing the firm
uses more of.
B) Is equal to the rate of return as calculated by CAPM.
C) Is what a firm must earn on a project to compensate investors for the use of their
funds.
D) Will be the equity cost or the debt cost, which ever is higher.
E) Will be the equity cost or the debt cost, which ever is lower.
