Quiz Ch 17 – T/F Financial Leverage Impact on Shareholder Return and Risk
Principles of Corporate Finance
Brealey, Myers, and Allen
13th Edition
True or false: The expected return and risk for shareholders are enhanced by financial leverage.
True or false: The expected return and risk for shareholders are enhanced by financial leverage.
True or false: Investors have a preference for greater returns when it comes to leveraged equity as opposed to an equivalent amount of unleveraged equity.
True or false: The mix of a firm’s debt securities is an exception to the law of conservation of value.
True or false: As more debt is issued, the weighted average cost of capital decreases due to the lower expected rate of return on debt compared to equity following Modigliani and Miller Proposition II.
True or false: Modigliani and Miller Proposition II asserts that the cost of equity rises with increased debt issuance, while the weighted average cost of capital remains constant.
True or false: The rate of return required by debtholders rises linearly with changes in the firm’s debt-equity proportion in Modigliani and Miller Proposition II.
True or false: Modigliani and Miller Proposition II suggest that a firm’s capital structure influences the expected return on its assets.
True or false: The rate of return required by shareholders rises consistently with changes in the firm’s debt-equity relationship in Modigliani and Miller Proposition II.
True or false: The market value of any firm is not influenced by its capital structure according to Modigliani and Miller’s Proposition I.
True or false: While the value additivity principle applies to the aggregation of assets, it does NOT hold for the division of assets.