MULTIPLE CHOICE. 3 points each. Circle the letter of the BEST answer, 1. When looking for the weighted average cost of capital, we are striving for the WACC that a. Balances the rates on debt and equity as evenly as possible. b. minimizes the value of the firm c. maximizes the value of the firm. d. Balances the weights as evenly as possible between debt and equity. e. Is the largest number. 1.6 2. An investor with a portfolio beta of 1.1 is thinking of adding one of the three following stocks to his portfolio: Beta Laclede Gas Ameren UE AT&T 1.32 Which one would contribute to lowering the risk of the overall portfolio? a. Laclede Gas b. Ameren UE C. AT&T d. Either Laclede Gas or Ameren UE e. Either Ameren UE or AT&T 3. Assuming no taxes and no transaction costs, an investor is considering two stocks. Stock A has a 5% dividend yield and Stock B pays no dividend at all. Which should the investor choose? 3. Stock A because it pays a dividend. b. Stock B because the capital gains will probably be higher. C. Neither one. He should look for a stock with a higher dividend. d. Either one. The investor should not base his decision on the information given. e. Neither one. He should look for a stock that pays a lower dividend. 4. If it were generally accepted that a popular trading range for stock is $20 to $50, and our company stock is currently selling at $4.00 per share, what action would you expect the company to take? a. Issue a cash dividend b. Do a forward stock split C. Issue a stock dividend d. Do a stock repurchase e. Do a reverse stock split 5. The risk inherent in a firm's operations is a. business risk b. financial risk C interest rate risk d. dividend risk e. capital structure risk 6. A firm's cost of debt. a. Is calculated using SML or DGM. b. is the rate lenders require on new borrowing. c. Is the yield to maturity on outstanding bond issues. d. Both a and b e. Both b and c