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A higher return on invested capital or ROIC usually results in higher cash flows. A) True B) False Growth in the value of a firm is reduced if the ROIC is less than the cost of capital. A) True B) False If a firm has a high ROIC but low growth, it will benefit more from seeking an even higher ROIC than on a strategy of more rapid growth. A) True B) False Expanding a firma‚a„s portfolio of products is usually less expensive than attempting to expand its market share of its existing products. A) True B) False Acquisition of other successful firms is usually the cheapest way to expand ROIC. A) True B) False The Principle of Value states that anything that does not increase cash flow does not increase value. A) True B) False Changing capital structure can create value even if it does not increase cash flow. A) True B) False 33. Prior to the relatively recent change in the tax treatment of corporate dividends, an increase in the degree of debt leverage increased the cash flow but also increase the risk of bankruptcy. A) True B) False 34. An entrenched management with little independent stockholder pressure, and following a behavior of profit satisficing rather than maximizing shareholder value, could rationally choose a strategy of expansion even if that expansion did not increase cash flow. A) True B) False 35. Efficient diversification of a portfolio reduces unsystematic risk but does not alter systematic risk. A) True B) False 36. Changing from straight-line depreciation to accelerated depreciation for tax purposes reduces the cash flow of the firm. A) True B) False

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