1) Which of the following statements about flotation costs is incorrect:

a. Flotation costs for debt is typically lower than flotation costs for equity. b. As a company issues more equity the flotation costs, as a percentage of the capital raised, decreases. c. Due to flotation costs on equity the WACC₂ is higher than WACC₁. d. All capital components, i.e. debt, preferred stock, retained earnings, and equity, have flotation costs.

2) What does the Break Point represent?

a. The point where a firm moves from WACC₁ to WACC₂. b. The maximum amount of capital that a firm can raise before they run out of retained earnings. c. The total amount of capital that needs to be invested in a new project. d. Both A and B are correct.

3) If the before tax R_D equals 8% and the firms tax rate equals 25%, how much is the R_re using the Bond-Yield-plus-Risk-Premium method?

a. 6% b. 9% c. 10% d. 12%

4. Which of the following actions will best enable a company to raise additional equity capital, other things held constant?

a. Announce a higher dividend payment in the future. b. declare a stock split c. lower their dividend pay out ratio d. end a stock repurchase program