1. Holden Bicycles has 2,000 shares outstanding each with a par value of $0.50. If they are sold to shareholders at $12 each, what would the capital surplus be?

2. A firm has a debt-to-equity ratio of 1. Its cost of equity is 16%, and its cost of debt is 8%. If the corporate tax rate is 25%, what would the cost of equity be if the debt-to-equity ratio were 0?

3. The interest tax shield has no value for a firm when: I. the tax rate is equal to zero. II. the debt-equity ratio is exactly equal to 1. III. the firm is unlevered. IV. a firm elects 100% equity as its capital structure.

4. Given the following information, leverage will add how much value to the unlevered firm per dollar of debt? Corporate tax rate: 34% Personal tax rate on income from bonds: 20% Personal tax rate on income from stocks: 0%

5. Given the following information, leverage will add how much value to the unlevered firm per dollar of debt? Corporate tax rate: 30% Personal tax rate on income from bonds: 20% Personal tax rate on income from stocks: 0%