Firm A has an asset beta of 1.5. Firm B has asset beta of 1. Which of the following

could be a reason why Firm A has a higher asset beta than Firm B?

                                           I.           Firm A has high operating leverage compared to Firm B

                                        II.           Firm A has more cyclical revenues compared to Firm B

                                     III.           Firm A has high financial leverage compared to Firm B

A.   I only

B.    II only

C.    I and II

D.   II and III

E.    I, II and III

2.     Which of the following condition(s) must hold before a firm can use its existing WACC to discount the financial cash flows of a new investment?

                                                 I.     The new asset must be similar to the firm’s existing assets

                                              II.     The firm’s debt ratio must remain unchanged after the investment

                                           III.     The new investment must be financed entirely with equity

A.   I only

B.    II only

C.    I and III

D.   II and III

E.    I and II

Looking for a Similar Assignment? Order now and Get 10% Discount! Use Coupon Code "Newclient"