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Part 1: say true or false
1. Generally, increase in leverage result in increased in return and risk.
2. Operating leverage is the relation ship between a firm sales revenue and its financial
expense.
3. Financial risk refers to extra risk stockholder bear as a result of the use of debt as
compared with the risk they would bear if no debt were used
4. A firm capital structure can never affect its free cash flow.
5. Pecking order theory is state that the optimal capital structure is tr leeff between interest tax shield and cost of financial distress.
PART II: Multiple Choice (1.5 pts each): Choose the best answer among the given alternatives.
1.
is a form of cash dividend which is truly one time and does not repeated in the future. A. Regular cash dividend
C. Special cash dividend
B. Extra cash dividend
2.
D. Liquidating dividend
this theory of capital structure the total market value of the firm (V) is not affecte ! by
the change in the capital structure and the overall cost of capital (kw) remains fixed irrespective of the debt-equity mix.
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1. True
2. False
3. True
4. False
5. False
Multiple Choice:
1. C. Special cash dividend
2. D. Liquidating dividend