1. Which of the following statements about lease financing is incorrect:

1. Lease financing increases the risk for the firm.
2. Lease financing can be considered a form of debt financing.
3. Lease financing is subordinated to equity.
4. Lease financing is typically considered a capital structure component.

2. Hybrid financing

1. lowers the WACC for the firm.
2. will result in dilution for the shareholders.
3. is more risky then equity.
4. Both A. and B. are correct.

3. What do lease financing and hybrid financing in common?

1. They both lower the WACC for the firm.
2. Properly used they both will result in higher profits for the shareholders.
3. They both are more risky then equity.
4. They have nothing in common.

4. By enrolling the Widows-and-Orphans Clientele into a DRIP a firm is able to retain some of its current shareholders.

True/False

5. Which of the following statements about flotation costs is incorrect:

1. As a company issues more equity the flotation costs, as a percentage of the capital raised, decreases.
2. Due to flotation costs on equity the WACC₂is higher than WACC₁.
3. All capital components, i.e. debt, preferred stock, retained earnings, and equity, have flotation costs.
4. Flotation costs represents a payment to investment banks for their services.

6. A stock split has no impact on the value of the firm.

True/False