1) In the H-model, if the short-term growth rate increases, what happens to the implied value of the firm?

Decreases because the growth rate declines linearly over the long run

Decreases because the difference between the short-run and long-run growth rates decreases

Increases because the present value of the dividends increases

2) Assume that a firm borrows money by issuing new bonds and uses a portion of the proceeds to buy back shares. What will be the net effect on ROE?

An increase because the interest expense will decrease taxes and thereby increase earnings

An increase because there is less equity

A decrease because the firm will be riskier with a higher WACC

3) If the corporate tax rate increases, what happens to a firms WACC?

Remains unchanged

Decreases

Increases