(13) Working capital includes all of the following items except:

Notes payables.

Inventory.

Retained earnings.

Account payables.

(14) Which of the following statements about Capital Asset Pricing Model (CAPM) equation "E(RA) = Rf +BA(E(RM) - Rf) " is true ______

E(RA) is the required rate of return for stock A.

Rf is the real risk-free rate.

E(RM) is the required rate of return on the individual security.

BA is the beta coefficient for the market portfolio.

(16) A firm's optimal capital structure ______

is generally a mix of 40% debt and 60% equity.

exists when the debt-equity ratio is 0.5.

is the debt-equity ratio that exists at the point where the firm's weighted after-tax cost of debt is minimized.

is the debt-equity ratio that results in the lowest possible weighted average cost of capital and the largest firm value

(18) Business risk is defined as the:______

equity risk that comes from the nature of a firm's operating activities.

equity risk associated with the capital structure of a firm.

probability that a firm will file bankruptcy.

situation in which a firm causes its creditors to suffer a financial loss.

(21) Announcements and news contain both an expected component and a surprise component. It is the surprise component that affects a stock's price and therefore its return____

True

False

(23) We want to choose the optimal capital structure for a firm that will maximize the stockholder wealth _______

True

False

(25) A company can buy back its own shares of stock (stock repurchase) on the open market, and the company can also make a tender offer to buy back its shares. _______

True

False

(26) Which one of the following is the prime objective of a residual dividend policy? _______

Maintaining a stable dividend

Increasing the dividend at a steady pace

Meeting the firm's investment needs

Maintaining a stable dividend payout ratio

(30) In a Chapter 7 bankruptcy, which one of the following will have the lowest priority when a bankrupt firm's assets are distributed if the absolute priority rule is followed?

preferred stockholders

secured creditors

unsecured creditors

common shareholders

(36) Suppose we have a bond issue currently outstanding that has 25 years left to maturity. The coupon rate is 9% and coupons are paid annually. The bond is currently selling for $968.72 per $1,000 bond. What is the before-tax cost of debt (YTM)?

5.00%

9.33%

10.0%

9.00%

(37) Based on the information from Question 36, if the firm's marginal tax rate is 20%. What's the firm's after-tax cost of debt?________

3.58%

5.08%

6.32%

7.46%

(39) If a firm's before-tax cost of common equity is 6.5% and the firm has a 20% marginal tax rate, what is the firm's after-tax cost of preferred stock?

6.5%

5.2%

10.0%

None of above is correct.

(43) A firm has a $10 million bond outstanding with a coupon rate of 6%. The tax rate is 35%. What is the present value of the tax shield?______

$3.5 million

0.18 million

$10 million

$13.5 million