1.Acompanylookingtoissuedebtinsteadofequitymaywanttoconsiderdebtduetofavorabletaxbenefits.

a.True

b.False

2.Debtfinancingtypicallyhasahighercostofcapitalthanequity.

a.True

b.False

3.Smallandmedium-sizecompaniestypicallyhavemoredifficultyattractingequitycapitalthandebtcapital.

a.True

b.False

4.Anadvantageofdebtfinancingisthatitdecreasesfinancialleverage.

a.True

b.False

5.Debenturebondsareonlyissuedbycompanieswithanexcellentcreditrating.

a.True

b.False

6.Whenacompanysellsitsbondsatlessthanfacevalue,theeffectiveinterestrateis a.lowerthantheyieldrate.

b.higherthanthecontractinterestrate.

c.lowerthanthenominalrate.

d.higherthanthemarketinterestrate

7.Whenthemarketrateofinterestislessthanthecontractrateofinterest,thebondswillsell

a.belowfacevalue.

b.atadiscount.

c.behindparvalue.

d.atapremium

8.Whenthemarketrateofinterestisequaltothecontractrateofinterest,thebondsshouldsellat a.apremium.

b.parvalue.

c.thecallprice.

d.theconversionprice.

9. Theproperprocedureforcomputingtheissuancepriceofabondincludesaddingthe a.maturityvalueofthebondstotheaccruedinterest. b.maturityvalueofthebondstothepresentvalueoftheinterestpayments. c.presentvalueoftheprincipaltotheaccruedinterest. d.presentvalueoftheprincipaltothepresentvalueoftheinterestpayments.

10. Whenisinterestexpensemorethaninterestpaid?

a.whenbondsaresoldatapremium

b.whenbondsaresoldatamargin

c.whenbondsaresoldatadiscount

d.whenbondsaresoldatayield