Which of the Following Statements Are Correct in Relation to M

question 30

Multiple Choice

Which of the following statements are correct in relation to M & M Proposition II with no taxes?
I.The required return on assets is equal to the weighted average cost of capital.
II.Financial risk is determined by the debt-equity ratio.
III.Financial risk determines the return on assets.
IV.The cost of equity declines when the amount of leverage used by a firm rises.

• A)I and III only
• B)II and IV only
• C)I and II only
• D)III and IV only
• E)I and IV only

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Definitions:

Marginal Revenue

The additional income generated from selling one more unit of a product or service.

Demand Curve

A graph showing the relationship between the price of a product and the quantity of the product that consumers are willing and able to purchase at various prices.

Inverse Demand Curve

A graphical representation showing the relationship between the price of a good and the quantity demanded, with price as a function of quantity demanded.

Quantity Demanded

It is the total amount of a good or service that consumers are willing and able to purchase at a specific price level.