3. When considering how to finance the acquisition of an asset, which of the following stalements is true?

O a. The cash flows generated by the assels Should ordinarily dictate the lype of note (e.g. noninterest-bearing, installment, elc.) the company uses to finance the asset.

• b. The cash flow required by the type of note used should ordinarily dictate the type of asset acquired.
• c. The amount borrowed should be larger than the cost of the assets acquired.
• d. The company should never borrow money unless there is no cash to fund the asset acquisition.

4. When convertible bonds are exchanged for common stock, which of the following is true? (Select all that apply.)

O a. The debt to equity ratio will go down.

b. Interest expense will decrease.

c. The times-interest-earned ratio will go up.

d. The bonds will not have to be repaid at the maturity date.

5. the amount of periodic interest expense for a particular bond issue is a function of

O a. The coupon rate.

O b. The effective rate.

O c. Both the coupon rate and the effective rate.

O d. Neither the coupon rate nor the effective rate.