8. Which statement is TRUE?

a. The WACC is the expected return on capital budgeting projects of average risk.

b. Business Risk results from a firms use of debt.

c. Financial Distress costs are costs that occur when a company is in trouble, but before it goes bankrupt. These costs can be thought of as the last straw in that they help to push a company into bankruptcy.

d. According to the tradeoff models of capital structure, the cost of debt is minimized at the optimal capital structure

Which statement is TRUE?

a. Adding debt will increase the firms ROE as long as the cost of debt is lower than their Basic Earning Power.

b. The level of debt does NOT affect the financial risk of a firm.

c. If a company increases its level of debt, then its Net Income will increase

d.According to the tradeoff model of capital structure, the costs of debt and equity will both fall as the level of debt increases.

Which of the following statements is TRUE?

	a. From an individual investor's perspective, preferred stock is riskier than bonds.
	b. Owners of preferred stock have greater voting rights than common shareholders.
	c. Companies are more likely to issue preferred stock if they have a high tax bracket since preferred stock dividends are tax deductible.
	d. Most preferred stock is owned by individual investors due to the fixed dividends. . Which statement is TRUE? a. Dividend rights say that shareholders get any remaining assets after all creditors have been paid in bankruptcy b. According to financial theory, stock price should be unaffected by a two-for-one stock split. c. A stock split is a large stock dividend so that you might have twice as many shares with each share being worth half as much. d. The stock price should fall by the amount of the dividend on the payment date. Which of the following statements about warrants and convertibles is TRUE? a. A convertible bond allows the firm to buy back the bond prior to maturity b. One primary difference between warrants and convertibles is that convertibles bring in additional funds to the firm when exercised while warrants reduce debt c. The coupon rate on convertible debt is higher than the coupon rate on similar straight debt because convertibles are riskier. d. Warrants and Convertibles are used by corporations in order to get a lower rate on their debt.