Adding Any Independent Variable to a Regression Model Will Increase

question 20

Multiple Choice

Adding any independent variable to a regression model will increase ________.

• A) adjusted R² or R⁻²
• B) s
• C) MSE
• D) R²
• E) the length of all prediction intervals

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Definitions:

Pre-Tax Cost

The pre-tax cost of debt is the interest rate a company pays on its borrowings before taking into account the tax deductions that reduce the effective interest cost.

Debt-Equity Ratio

A benchmark ratio illustrating how a company’s assets are financed by shareholders' equity and debt.

M&M II

Modigliani and Miller Proposition II; a theory on capital structure, which states that the value of a firm is independent of its capital structure, under certain assumptions.

Unlevered Cost

It refers to an investment's cost or return that does not consider the effects of borrowing or leverage.