Problem 1) Firm value is calculated by adding expected cash flow to the firm's cost of capital under each capital structure. True or False.
Problem 2) The degree of financial leverage measures the sensitivity of_______ to changes in ________.
a) net sale, EBIT. b) EBIT, net sales c) EBIT, EPS. d) EPS,EBIT.
Problem 3) Explain how diversification affects risk and how correlation between securities affects portfolio risk.