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2894. Which of the following is/are false regarding capital structure theory as stated by Miller and Modigliani? 1) If agency costs are considered, the expected agency costs increases as the debt-equity ratio decreases. 2) With the given assumptions, there is no optimal capital structure. 3) In the presence of taxes, the market value of the firm decreases by the tax shield of debt

Only 1st statement
Only 2nd statement
Both 1st and 3rd statements
All the three statements.
✅ The correct answer is D.
The Modigliani-Miller theorem (M&M) states that the market value of a company is calculated using its earning power and the risk of its underlying assets and is independent of the way it finances investments or distributes dividends. There are three methods a firm can choose to finance: borrowing, spending profits (versus handing them out to shareholders in the form of dividends), and straight issuance of shares. While complicated, the theorem in its simplest form is based on the idea that with certain assumptions in place, there is no difference between a firm financing itself with debt or equity.

2895. The cost of capital of a firm is ______________.

The dividend paid on the equity capital
The weighted average of the cost of various long-term and short-term sources of finance
The average rate of return it must earn on its investments to satisfy the various investors
The minimum rate of return it must earn on its investments to keep its investors satisfied
✅ The correct answer is D.
The cost of capital of a firm is the minimum rate of return it must earn on its investments to keep its investors satisfied.

2876. One way to obtain earnings forecasts is the mechanical procedure known as___________.

cross-reference analysis
exponential trending
time series analysis
data mining
✅ The correct answer is C.
One way to obtain earnings forecasts is the mechanical procedure known as time series analysis. Time series analysis is a statistical technique that deals with time series data, or trend analysis. Time series data means that data is in a series of particular time periods or intervals.

2879. Stet the correct statement?

In endowment assurance survival up to the end of the term as well as in between death will give the claimant the benefits of the policy
An endowment policy only survival benefit is available
In endowment cover only death benefit is there
Endowment plan and Term insurance are similar in benefits
✅ The correct answer is A.
In endowment assurance survival up to the end of the term as well as in between death will give the claimant the benefits of the policy.

2883. Point in joint production process, in which two or more products are separately identifiable is termed as

step down point
incremental point
split off point
inseparability point
✅ The correct answer is C.
Point in joint production process, in which two or more products are separately identifiable is termed as split off point. A split-off point is the location in a production process where jointly manufactured products are henceforth manufactured separately; thus, their costs can be identified individually after the split-off point.

2885. Anti-selection means –

Tendency of people who expect loss to take insurance eagerly leading to loss to the insurer
Tendency of people to go for small amount of insurance
Tendency of people who have good health to go for insurance
Non evincing keen interest in buying an insurance
✅ The correct answer is A.
Anti-selection means Tendency of people who expect loss to take insurance eagerly leading to loss to the insurer. Anti-selection is the tendency of people, who suspect or know that their chance of experiencing a loss is high, to seek out insurance eagerly and to gain in the process.
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