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1. According to the static theory of capital structure, a firm borrows up to which one of the following points?

point where the firm is financed totally with debt

point where an additional dollar of debt would have a benefit exactly equal to its cost

point where WACC equals the debt-equity ratio

point where the debt-equity ratio equals 1.0

2. According to M&M Proposition I with taxes, the value of a levered firm is equal to the value of the unlevered firm plus which one of the following?

current market value of the debt

par value of the debt

present value of the depreciation tax shield

present value of the interest tax shield

3. Which one of the following is the equity risk arising from the daily operations of a firm?

Business risk

Financial risk

Operating risk

Strategic risk

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92752235

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