Examine the Table Below

question 15

Multiple Choice

Examine the table below. What do the z-scores (i.e. standardized residuals) for the two variables tell us?

• A) Athletes who were inspired by the London Olympics had a significant z-score.
• B) Non-athletes who were inspired by the London Olympics had a significant z-score.
• C) None of the z-scores were significant.
• D) Athletes who were not inspired by the London Olympics had a significant z-score.

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Definitions:

Weighted Average Cost of Capital

Weighted Average Cost of Capital (WACC) is a calculation of a company's cost of capital in which each category of capital is proportionately weighted.

Tax Shield

The reduction in income taxes that results from taking an allowable deduction from taxable income, such as interest on debt.

Capital Structure

The mix of debt and equity financing a company uses to fund its operations and growth.

M&M Proposition II

Modigliani and Miller's Proposition II states that a company's cost of equity increases as it increases its leverage due to the risk premium on equity.