1.0. Closely held firms (where managers and insiders hold a substantial portion of the outstanding stock) are less likely to increase leverage quickly than firms with widely dispersed stockholdings.

True or False

Explain.

1.1. Which of the following types of firms should be most likely to use project-specific financing (as opposed to financing the portfolio of projects)?

a. Firms with a few large homogeneous projects

b. Firms with a large number of small homogeneous projects

c. Firms with a few large heterogeneous projects

d. Firms with a large number of small heterogeneous projects

Explain.

1.2. Adding special features to bonds, such as linking coupon payments to commodity prices or catastrophes, will reduce their attractiveness to investors and make the interest rates paid on them higher. It follows then that

a. companies should not add these special features to bonds.

b. adding these special features cannot create value for the firm if the bonds are fairly priced

c. adding special features can still create value even if the bonds are fairly priced

Explain