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1 Preferred shareholders’ claims on assets and income of a firm come _______ thoseof creditorsâ __________those of common shareholders.a Before; and also beforeb After; but beforec After; and also afterd Equal to; and equal to2Which of the following would appear as liability in the balance sheet of acompany?a The value of Bonds purchased for investment purposesb The value of Bonds issued for raising capitalc The value of Stocks purchased for investment purposesd None of the given options3Operating leverage may be defined as:a The degree to which debt is used in financing the firmb The difference between price and variable costsc The extent to which capital assets and fixed costs are utilizedd The difference between fixed costs and the contribution margin4The ultimate ownership of the firm resides:a With managementb With common shareholdersc With preferred shareholdersd With bondholders5Preferred shareholders:a Play a primary role in the financing of the firmb Have a subordinated claim to dividendsc Possess an ownership interest in the firmd Normally have no vote on corporate issues6The cost of each component of a firm’s capital structure multiplied by its weight inthe capital structure is called the:a Marginal cost of capitalb Cost of debtc Weighted average cost of capitald None of the above7The cost of new common stock (external equity) is generally higher than the costof retained earnings (internal equity) because of:a Tax effects.b Investorsâ required returns.c Flotation costs.d Coupon payments8The mix of debt, preferred stock, and common equity with which the firm plans toraise capital is called the:a Financial risk.b Operating leverage.c Business risk.d Target capital structure.9Which of the following can be a cause of a high basic business risk?a High operating leverageb Large changes in customersâ demandc Uncertainty in input costsd All of the above10 Which of the following causes an increase in a company diversifiable risk?a Issuance of bondsb Issuance of common stocksc Investing in short term money market securitiesd Non of the given option