7.

All of the following statements related to automatic dividend reinvestment plans are correct EXCEPT I. help shareholders create their own homemade dividend policies. II. help make corporate dividend policies irrelevant to individual stockholders. III. sometimes grant bondholders the privilege of purchasing additional shares at a discounted price. IV. allow shareholders reinvest part or all of the dividend they received in the bonds of the company.

III and IV only

II and IV only

I and II only

III only

II only

8.

A firm's overall cost of equity is: I. not affected by changes in the market risk premium. II. not dependent upon the growth rate and risk level of the firm. III. generally higher than the firm's aftertax cost of debt. IV. inversely related to changes in the firm's tax rate. V. generally equal to the firm's WACC for a levered firm.

II only

III only

III and V only

III, IV and V only

V only

9.

Which of the following is/are used in the calculations of the capital structure weights when computing the weighted average cost of capital? I. market value of firm's debt II. book value of firm's equity III. book value of preferred stock IV. yield to maturity of firm's bonds

I and II only

I only

I, II, III and IV

III and IV only

I, III and IV only