All of the following statements are correct, except*

a. The cost of capital is a key criterion in project evaluation.

b. When cash flows are uncertain, the cost of capital represents the interest rate a rm has to pay if it borrowed the money to nance the investment.

c.The cost of capital is the hurdle rate that a project must exceed.

d.When a rm ignores the cost of capital, investments in subpar projects will destroy wealth.

An optimal capital structure occurs under*

a. traditional and contemporary approaches.

b. contemporary approach.

c. traditional approach.

d. Modigliani and Miller approach without corporate taxes.

When the constant dividend growth model is used, the cost of retained earnings equals*

a. the current market price plus expected growth rate in dividends.

b. the current dividend plus the expected growth in sales.

c. the expected dividend payout plus the expected growth rate in dividends.

d. the expected dividend yield plus the expected growth rate in i dividends.

What type of dividend policy pays out whatever remains after protable investment opportunities are satisfied?*

a. Stable dividend policy

b. Constant dividend payout ratio policy

c. Regular dividends plus extras policy

d. Residual dividend policy

Which of the following factors does not affect a rm's dividend policy?*

a. Restrictive covenants in the rm's loan agreements

b. An unstable earnings pattern

c. Owner preference

d. Ordinary equity shares par value