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Financial Management Practice Set

106. Which of the following is not an assumption in Miller and Modigliani approach?
(A) There are no corporate or personal income tax.
(B) Investors are assumed to be rational and behave accordingly.
(C) There is no corporate tax though there are personal income tax.
(D) Capital markets are perfect .
107. Which of the following is / are assumption behind the realized yield approach?
(A) The yield earned by investors has been, on average, in conformity with their expectations.
(B) The dividends will continue growing at a constant rate forever.
(C) The market price will continue growing at a constant rate forever.
(D) Both a and
(B)
108. Which of the following is not an assumption in the Miller & Modigliani approach?
(A) There are no transaction costs.
(B) Securities are infinitely divisible.
(C) Investors have homogeneous expectations.
(D) All the firms pay tax on their income at the same rate.
109. Which, among the following, are common misconceptions about cost of capital?
(A) Depreciation-generated funds have no cost.
(B) Cost of capital is low if a project is heavily debt-finance
(D)
(C) Cost of equity is equal to the dividend rate.
(D) All of the above.
110. Cost of equity capital
(A) Is lesser than the cost of debt capital.
(B) Is equal to the dividend rate expectations of equity shareholders for the coming year.
(C) Is equal to the dividend rate declared on equity shares.
(D) Is equal to the return earned on equity capital.