1) Whenever a firm splits itself into separate units, with each unit having limited liability with respect to its financing, the capital structure of each unit becomes __

A. an irrelevant consideration for a cost of capital.

B. the relevant consideration for a cost of capital.

C. important only if the firm faces financial distress.

D. none of these

2) An investor's risky portfolio is made up of individual stocks. Which of the following statements about this portfolio is true?

A. Each stock in the portfolio will have a beta greater than one.

B. Selling any stock in this portfolio will lower the beta of the portfolio.

C. An investor cannot change the risk of this portfolio by her choice about personal leverage (lending or borrowing).

D. Each stock in the portfolio has its own...