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Multiple Choice questions relating to Capital Structure

Please state your why you selected the answer so I can better understand.

1. A statistical measure of the degree of correlation between two quantitative variables is called:

j. correlation
k. covariance
l. correlation coefficient
m. beta

2. Which of the following best illustrates a formal model of the relationship between risk and return?

a. Security Market Line (SML)

b. Capital asset pricing model (CAPM)

c. Weighted Average Cost of Capital (WACC)

d. Earnings before income taxes-earnings per share (EBIT-EPS)

3. The variation in return on an investment caused by general economic factors that affect all investments is called:

a. systematic risk

b. nonsystematic risk

c. nondiversifiable risk

d. firm-specific risk

4. The discount rate such that the net present value of a stream of cash flows is zero is called the required rate of return.

True

False

5. Flexibility, Risk, Income, Control, Timing, and Other (FRICTO) are factors to consider in capital structure decisions.

True

False

Solution Preview

1. l. Correlation Coefficient. The other parameters - correlation is if the variables are related and is measured by correlation coefficient. Covariance is a statistical measure of ...

Solution Summary

The solution has explanations for various multiple choice questions relating to capital structure

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