46) Due to asymmetric information, the market fears that a firm issuing securities will do so when the stock is _________. A. caught up in a bear market B. undervalued C. being sold by insiders D. overvalued 47) Which of the following statements is true? A. The Principle of Incremental Benefits says to consider the possible ways to minimize the value lost to capital market imperfections, such as asymmetric taxes, asymmetric information, and transaction costs. B. The Principle of Valuable Ideas suggests to look for opportunities to create value by issuing securities that are in short supply, perhaps resulting from changes in tax law. C. The Time Value of Money Principle advises to include any time-value-of-money tax benefits from capital structure choices. D. all of these 48) __________ says to look for opportunities to invest in positive-NPV projects in foreign markets or to develop derivatives or design arrangements that enable firms to cope better with the risks they face in their foreign operations. A. The Principle of Capital Market Efficiency B. The Principle of Risk-Return Trade-off C. The Principle of Valuable Ideas D. The Principle of Diversification 49) An all-equity-financed firm would __________. A. not pay corporate income taxes because it would have no interest expense. B. not pay any income taxes because interest would exactly offset its taxable income. C. pay corporate income taxes if its taxable income is positive D. pay corporate income taxes because it would have interest expense. 50) “Hard” capital rationing refers to the rationing __________. A. always imposed by competitors B. imposed by external factors C. always imposed by debt holders D. imposed internally by the shareholders 51) A checking account is __________. A. a place to “collect” money between inflows and outflows B. an account that acts like a reservoir C. useful because you can add money in any amount D. all of these 52) __________ says to seek out investments that offer the greatest expected risk-adjusted real return. A. The Principle of Self-Interested Behavior B. The Principle of Incremental Benefits C. The Principle of Valuable Ideas D. The Signaling Principle 53) An investor's risky portfolio is made up of individual stocks. Which of the following statements about this portfolio is true? A. An investor cannot change the risk of this portfolio by her choice about personal leverage (lending or borrowing). B. Each stock in the portfolio has its own beta. C. Each stock in the portfolio will have a beta greater than one. D. Selling any stock in this portfolio will lower the beta of the portfolio. 54) Under capital rationing, given the choice among several equally attractive investments, the best tool to use is the __________. A. Profitability Index method B. Internal Rate of Return method C. Net Present Value method D. Payback method 55) Which of the following statements is true? A. The Principle of Capital Market Efficiency says to consider the possible ways to minimize the value lost to capital market imperfections, such as asymmetric taxes, asymmetric information, and transaction costs. B. The Behavioral Principle suggests to look for opportunities to create value by issuing securities that are in short supply, perhaps resulting from changes in tax law. C. The Signaling Principle says to consider any possible change in capital structure carefully, because financing transactions and capital structure changes convey information to outsiders and can be misunderstood. D. all of these
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