o 2 Question 8 2 pts Firms that use financial leases must consider their debt-to-equity ratios as inadequate measures of financial leverage because 1. lenders are concerned about the firm's total liabilities and related cash flow. 2. debt displacement occurs with leasing. 3. less future debt can be raised for a growing firm when a lease is used. 4. All of the above. 5. None of the above. O 3 O2 O 5 O1 4 D Question 9 2 pts D Question 10 2 pts Transfer or expropriation of wealth from bondholders to stockholders is less likely to occur when 1. subordinated straight debt is issued because there are other senior bondholders to protect them. 2. convertible debt is issued because the equity component will reduce these agency costs when value is shared. 3. convertible debt is issued because the holders can more readily sue when a high-risk project is under taken. 4. subordinated debt because monitoring is much easier with subordinated straight debt is issued. 5. None of the above. 0 1 O 3 2 o 4 5 Question 11 2 pts Question 13 2 pts Your firm is considering leasing a new photocopier. The lease lasts for nine years. The lease calls for 10 payments of $1,000 per year with the first payment occurring immediately. The copier would cost $8,100 to buy and would be depreciated using the straight-line method to zero salvage over nine years. The firm can borrow at a rate of 8 percent. The corporate tax rate is 21 percent. What is the NPV of the lease? 1. -$1,039 2. $6,610 3. $743 4. $360 4 0 1 O 3 O2 Question 14 2 pts The MANA+AARth tauneimline that coulder Lindebt lactice their natten Question 14 2 pts The MM theory with taxes implies that firms should issue maximum debt. In practice, this is not true because: 1) debt is more risky than equity; II) bankruptcy and its attendant costs are a disadvantage to debt; III) the payment of personal taxes may offset the tax benefit of debt 1. I only 2. Il only 3. Ill only 4. II and III only O 3 4 o 2 Question 15 2 pts o 2 Question 8 2 pts Firms that use financial leases must consider their debt-to-equity ratios as inadequate measures of financial leverage because 1. lenders are concerned about the firm's total liabilities and related cash flow. 2. debt displacement occurs with leasing. 3. less future debt can be raised for a growing firm when a lease is used. 4. All of the above. 5. None of the above. O 3 O2 O 5 O1 4 D Question 9 2 pts D Question 10 2 pts Transfer or expropriation of wealth from bondholders to stockholders is less likely to occur when 1. subordinated straight debt is issued because there are other senior bondholders to protect them. 2. convertible debt is issued because the equity component will reduce these agency costs when value is shared. 3. convertible debt is issued because the holders can more readily sue when a high-risk project is under taken. 4. subordinated debt because monitoring is much easier with subordinated straight debt is issued. 5. None of the above. 0 1 O 3 2 o 4 5 Question 11 2 pts Question 13 2 pts Your firm is considering leasing a new photocopier. The lease lasts for nine years. The lease calls for 10 payments of $1,000 per year with the first payment occurring immediately. The copier would cost $8,100 to buy and would be depreciated using the straight-line method to zero salvage over nine years. The firm can borrow at a rate of 8 percent. The corporate tax rate is 21 percent. What is the NPV of the lease? 1. -$1,039 2. $6,610 3. $743 4. $360 4 0 1 O 3 O2 Question 14 2 pts The MANA+AARth tauneimline that coulder Lindebt lactice their natten Question 14 2 pts The MM theory with taxes implies that firms should issue maximum debt. In practice, this is not true because: 1) debt is more risky than equity; II) bankruptcy and its attendant costs are a disadvantage to debt; III) the payment of personal taxes may offset the tax benefit of debt 1. I only 2. Il only 3. Ill only 4. II and III only O 3 4 o 2 Question 15 2 pts
