8) The inclusion of bankruptcy risk in capital structure policy does which of the following? 1. Acknowledges that a firm has an upper limit to debt financing 2. Causes cost of capital curve to be linear 3. Causes the cost of capital curve to be downward sloping regardless of capital structure 3 4. Has no consequences for practical management of capital structure policy 9) When calculating the weighted average cost of capital, which of the following has to be adjusted for taxes? 1. Debt 2. Common stock 3. Retained earnings 4. Preferred stock 10) A negative coefficient of correlation implies that: 1. On average, returns to such assets are negative 2. Asset returns tend to move in opposite direction 3. Asset returns tend to move in the same direction 4. None of the above because the coefficient of correlation cannot be negative 11) Assuming today's time value perspective, which of the following statements is FALSE? 1. Dollar received one year from now will be worth MORE than a dollar received today 2. Compounding essentially means earning interest on interest on an initial balance 3. Perpetuities pay an equal payment forever 4. None of the above