A Measure That Yields Consistent Scores but Does Not Measure

question 1

Multiple Choice

A measure that yields consistent scores but does not measure what it is supposed to measure is ____.

• A)both valid and reliable
• B)neither valid nor reliable
• C)valid but not reliable
• D)reliable but not valid

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Definitions:

M&M Proposition I

Modigliani and Miller's principle suggesting the irrelevance of financial leverage on a company's valuation in an ideal market.

Debt-Equity Ratio

A calculation of a firm's financial leverage determined by dividing its overall liabilities by the equity of its shareholders.

Interest Tax Shield

The reduction in income taxes that results from the deductibility of interest payments from taxable income.

Capital Structure

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