18

Which of the following statements is correct?

Preferred dividends paid are tax deductible.

Interest expense is tax deductible.

Common dividends paid are tax deductible.

None of the statements above is correct.

Question 19

The preemptive right means common stockholders have the right to purchase any additional shares sold by the firm. It can help current shareholders maintain control of the firm and prevent managers from stealing wealth from the current shareholders.

True.

False.

Question 12

Which of the following statements about Security Market Line (SML) equation"r_i= r_RF+ (r_M- r_RF)b_i= r_RF+ (RP_M)b_i"is NOT true?

r_iis the required rate of return for stock i.

r_RFis the real risk-free rate.

r_Mis the required rate of return on a portfolio consisting of all stocks, which is called the market portfolio.

RP_Mis the risk premium on market portfolio. It equals tor_M- r_RF