1. Pepsicos next annual dividend is expected to be $1.14 a share. Dividends have been growing at a rate of 6% a year and you expect this rate to continue indefinitely. If your required rate of return for this stock is 9%, what is the maximum price you would be willing to pay for it?

A) $38

B) $42

C) $12.68

D) $53.24

2. A leverage effect will occur if:

A) fixed operating costs are greater than zero or if interest expense is less than zero

B) fixed operating costs are greater than zero or if interest expense is greater than zero

C) fixed operating costs are less than zero or if interest expense is greater than zero

D) fixed operating costs are less than zero or if interest expense is less than zero

3. Your firm has a DOL of 1.05 and an EBIT of $800,000. calculate the percent change in EBIT.

A)5.00%

B)12.5%

C)20.00%

D)21.00%

4. If the yield-to-maturity of a bond is less than the coupon rate, the bond will sell at:

A) a discount

B)) a premium

C) par value

D) its call price

5. A firm's before tax cost of debt on any new issue is 9%; the cost to issue new preferred stock is 10%. Can this pricing exist?

A)Yes

B) No

C) Not enough information