16. (3 points) Which of the following will increase the operating cycle? 1. Increasing the inventory tumover rate II. Increasing the payable period III. Decreasing the roceivable turnover nate IV. Decreasing the average payable level A. I only B. III only C. II and IV only D. I and IV only E. II and III only 17. (3 points) M\&M Proposition I with no tax supports the argument that: A. The WACC decreases as the leverage increases. B. The cost of equity rises as leverage rises. C. The debe-equity ratio of a firm is imelevant to its firm value. D. Homemade leverage is irrelevant. 18. (3 points) Hempstead Co. has a debt-equity ratio of 0.50 with a cost of debt of 8%. This company has the required return on assets of 13%. What is the cost of equity (R2) with ne taxes? A. 6.50% B. 13.0% C. 15.50% D. 17.50% Short answer questions ( 8 questions for 46 points) 19. (5 points) What is IPO underpricing? Explain. 20. (9 points) You are planning to purchase a put ontion on Apple stock that expires in 6 months. A put option with the exercise price (X) of $90 is selling at $5. Its stock price is currently $103 per share. 1) (3 points) What is the intrinsic value of the put option? 2) (3 points) The option is currently (out-of-the-money, at-the-moncy in-the-money). Choose a correct one. 3) (3 points) At what stock price will you have the net payoff of 0 ? (Hint: Find a break-even point.)