______ 19. The four basic sources of long-term funds for the business firm are

A. current liabilities, long-term debt, common stock, and preferred stock.

B. current liabilities, long-term debt, common stock, and retained earnings.

C. long-term debt, paid-in capital in excess of par, common stock, and retained earnings.

D. long-term debt, common stock, preferred stock, and retained earnings.

______ 20. The specific cost of each source of long-term financing is based on __________________ and

______________________ cost.

A. before-tax; historical

B. after-tax; historical

C. before-tax; book value

D. after-tax; current

______ 21. A corporation has concluded that its financial risk premium is too high. In order to decrease

this, the firm can

A. increase the proportion of common stock equity to decrease financial risk.

B. increase the proportion of long-term debt to decrease the cost of capital.

C. increase short-term debt to decrease the cost of capital.

D. decrease the proportion of common stock equity to decrease financial risk.

______ 22. The ______________________ from the sale of a security are the funds actually received from the

sale after _______________________, or the total cost of issuing and selling the security,

have been subtracted from the total proceeds.

A. gross proceeds; the after-tax costs

B. gross proceeds; the flotation costs

C. net proceeds; the flotation costs

D. net proceeds; the after-tax costs

______ 23. The cost of retained earnings is

A. zero.

B. equal to the cost of a new issue of common stock.

C. equal to the cost of common stock equity.

D. irrelevant to the investment/financing decision.

______ 24. The constant growth valuation model the Gordon model is based on the premise that the value

of a share of common stock is

A. the sum of the dividends and expected capital appreciation.

B. equal to the present value of all expected future dividends.

C. determined based on an industry standard P/E multiple.

D. determined by using a measure of relative risk called beta.

______ 25. Generally, the order of cost from least expensive to the most expensive, for long-term

capital of a corporation is

A. long-term debt, preferred stock, retained earnings, new common stock.

B. common stock, preferred stock, long-term debt, short-term debt.

C. new common stock, retained earnings, preferred stock, long-term debt.

D. preferred stock, retained earnings, common stock (ie., wonderful new

______ 26. A firm has determined its cost of each source of capital and its optimal capital structure, which is

composed of the following sources and target market value proportions:

Source of Capital	Target Market Proportions:	After-Tax Cost
Long-Term Debt	45%	5%
Preferred Stock	10%	14%
Common Stock Equity	45%	22%

If the firm were to shift toward a more leveraged capital structure (i.e., a greater percentage of

debt in the capital structure), the weighted average cost of capital would

A. increase.

B. remain unchanged.

C. decrease.

D. not be able to be determined.