Please give an explanation as to why you selected the answer from the multiple choices provided. This is a requirement, and failure to do so will result in no points for that question, even if you selected the correct answer.

Please give an explanation as to why you selected the answer from the multiple choices provided. This is a requirement, and failure to do so will result in no points for that question, even if you selected the correct answer. 1. Which of the following statements is CORRECT? a. Time lines cannot be constructed where some of the payments constitute an annuity but others are unequal and thus are not part of the annuity. b. A time line is not meaningful unless all cash flows occur annually. c. Time lines are not useful for visualizing complex problems prior to doing actual calculations. d. Time lines can be constructed to deal with situations where some of the cash flows occur annually but others occur quarterly. e. Time lines can only be constructed for annuities where the payments occur at the end of the periods, i.e., for ordinary annuities. 2. You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would lower the calculated value of the investment? a. The discount rate decreases. b. The cash flows are in the form of a deferred annuity, and they total to $100,000. You learn that the annuity lasts for only 5 rather than 10 years, hence that each payment is for $20,000 rather than for $10,000. c. The discount rate increases. d. The riskiness of the investment's cash flows decreases. e. The total amount of cash flows remains the same, but more of the cash flows are received in the earlier years and less are received in the later years. 3. Which of the following statements is CORRECT? a. If some cash flows occur at the beginning of the periods while others occur at the ends, then we have what the textbook defines as a variable annuity. b. The cash flows for an ordinary (or deferred) annuity all occur at the beginning of the periods. c. If a series of unequal cash flows occurs at regular intervals, such as once a year, then the series is by definition an annuity. d. The cash flows for an annuity due must all occur at the ends of the periods. e. The cash flows for an annuity must all be equal, and they must occur at regular intervals, such as once a year or once a month. 4. Your bank account pays a 5% nominal rate of interest. The interest is compounded quarterly. Which of the following statements is CORRECT? a. The periodic rate of interest is 5% and the effective rate of interest is also 5%. b. The periodic rate of interest is 1.25% and the effective rate of interest is 2.5%. c. The periodic rate of interest is 5% and the effective rate of interest is greater than 5%. d. The periodic rate of interest is 1.25% and the effective rate of interest is greater than 5%. e. The periodic rate of interest is 2.5% and the effective rate of interest is 5% 5. A $250,000 loan is to be amortized over 8 years, with annual end-of-year payments. Which of these statements is CORRECT? a. The proportion of interest versus principal repayment would be the same for each of the 8 payments. b. The annual payments would be larger if the interest rate were lower. c. If the loan were amortized over 10 years rather than 8 years, and if the interest rate were the same in either case, the first payment would include more dollars of interest under the 8-year amortization plan. d. The proportion of each payment that represents interest as opposed to repayment of principal would be lower if the interest rate were lower. e. The last payment would have a higher proportion of interest than the first payment. 6. Which of the following is generally NOT true and an advantage of going public? a. Increases the liquidity of the firm's stock. b. Makes it easier to obtain new equity capital. c. Establishes a market value for the firm. d. Makes it easier for owner-managers to engage in profitable self-dealings. e. Facilitates stockholder diversification. 7. Which of the following statements about listing on a stock exchange is most CORRECT? a. Any firm can be listed on the NYSE as long as it pays the listing fee. b. Listing provides a company with some "free" advertising, and it may enhance the firm's prestige and help it do more business. c. Listing reduces the reporting requirements for firms, because listed firms file reports with the exchange rather than with the SEC. d. The OTC is the second largest market for listed stock, and it is exceeded only by the NYSE. e. Listing is a decision of more significance to a firm than going public. 8. Which of the following statements is most CORRECT? a. Private placements occur most frequently with stocks, but bonds can also be sold in a private placement. b. Private placements are convenient for issuers, but the convenience is offset by higher flotation costs. c. The SEC requires that all private placements be handled by a registered investment banker. d. Private placements can generally bring in funds faster than is the case with public offerings. e. In a private placement, securities are sold to private (individual) investors rather than to institutions. 9. Which of the following statements is most CORRECT? a. The key benefits associated with refunding debt are the reduction in the firm's debt ratio and the creation of more reserve borrowing capacity. b. The mechanics of finding the NPV of a refunding decision are fairly straightforward. However, the decision of when to refund is not always clear because it requires a forecast of future interest rates. c. If a firm with a positive NPV refunding project delays refunding and interest rates rise, the firm can still obtain the entire NPV by locking in a low coupon rate when the rates are low, even though it actually refunds the debt after rates have risen. d. Suppose a firm is considering refunding and interest rates rise during time when the analysis is being done. The rise in rates would tend to lower the expected price of the new bonds, which would make them cheaper to the firm and thus increase the expected interest savings. e. If new debt is used to refund old debt, the correct discount rate to use in the refunding analysis is the before-tax cost of new debt. 10. Which of the following factors would increase the likelihood that a company would call its outstanding bonds at this time? a. A provision in the bond indenture lowers the call price on specific dates, and yesterday was one of those dates. b. The flotation costs associated with issuing new bonds rise. c. The firm's CFO believes that interest rates are likely to decline in the future. d. The firm's CFO believes that corporate tax rates are likely to be increased in the future. e. The yield to maturity on the company's outstanding bonds increases due to a weakening of the firm's financial situation. 11. Operating leases often have terms that include a. full amortization over the life of the lease. b. very high penalties if the lease is canceled. c. restrictions on how much the leased property can be used. d. much longer lease periods than for most financial leases. e. maintenance of the equipment by the lessor. 12. Which of the following statements is most CORRECT? a. Capitalizing a lease means that the firm issues equity capital in proportion to its current capital structure, in an amount sufficient to support the lease payment obligation. b. The fixed charges associated with a lease can be as high as, but never greater than, the fixed payments associated with a loan. c. Capital, or financial, leases generally provide for maintenance by the lessor. d. A key difference between a capital lease and an operating lease is that with a capital lease, the lease payments provide the lessor with a return of the funds invested in the asset plus a return on the invested funds, whereas with an operating lease the lessor depends on the residual value to realize a full return of and on the investment. e. Firms that use "off balance sheet" financing, such as leasing, would show lower debt ratios if the effects of their leases were reflected in their financial statements. 13. Financial Accounting Standards Board (FASB) Statement #13 requires that for an unqualified audit report, financial (or capital) leases must be included in the balance sheet by reporting the a. residual value as a liability. b. present value of future lease payments as an asset and also showing this same amount as an offsetting liability. c. undiscounted sum of future lease payments as an asset and as an offsetting liability. d. undiscounted sum of future lease payments, less the residual value, as an asset and as an offsetting liability. e. residual value as a fixed asset. 14. Heavy use of off-balance sheet lease financing will tend to a. make a company appear less risky than it actually is because its stated debt ratio will appear lower. b. affect a company's cash flows but not its degree of risk. c. have no effect on either cash flows or risk because the cash flows are already reflected in the income statement. d. affect the lessee's cash flows but only due to tax effects. e. make a company appear more risky than it actually is because its stated debt ratio will be increased. 15. In the lease versus buy decision, leasing is often preferable a. because, generally, no down payment is required, and there are no indirect interest costs. b. because lease obligations do not affect the firm's risk as seen by investors. c. because the lessee owns the property at the end of the least term. d. because the lessee may have greater flexibility in abandoning the project in which the leased property is used than if the lessee bought and owned the asset. e. because it has no effect on the firm's ability to borrow to make other investments 16. Which of the following statements is most CORRECT? a. By law in most states, all preferred stock must be cumulative, meaning that the compounded total of all unpaid preferred dividends must be paid before any dividends can be paid on the firm's common stock. b. From the issuer's point of view, preferred stock is less risky than bonds. c. Whereas common stock has an indefinite life, preferred stocks always have a specific maturity date, generally 25 years or less. d. Unlike bonds, preferred stock cannot have a convertible feature. e. Preferred stock generally has a higher component cost of capital to the firm than does common stock. 17. Which of the following statements about convertibles is most CORRECT? a. One advantage of convertibles over warrants is that the issuer receives additional cash money when convertibles are converted. b. Investors are willing to accept a lower interest rate on a convertible than on otherwise similar straight debt because convertibles are less risky than straight debt. c. At the time it is issued, a convertible's conversion (or exercise) price is generally set equal to or below the underlying stock's price. d. For equilibrium to exist, the expected return on a convertible bond must normally be between the expected return on the firm's otherwise similar straight debt and the expected return on its common stock. e. The coupon interest rate on a firm's convertibles is generally set higher than the market yield on its otherwise similar straight debt. 18. Which of the following statements concerning warrants is correct? a. Warrants are long-term put options that have value because holders can sell the firm's common stock at the exercise price regardless of how low the market price drops. b. Warrants are long-term call options that have value because holders can buy the firm's common stock at the exercise price regardless of how high the stock's price has risen. c. A firm's investors would generally prefer to see it issue bonds with warrants than straight bonds because the warrants dilute the value of new shareholders, and that value is transferred to existing shareholders. d. A drawback to using warrants is that if the firm is very successful, investors will be less likely to exercise the warrants, and this will deprive the firm of receiving any new capital. e. Bonds with warrants and convertible bonds both have option features that their holders can exercise if the underlying stock's price increases. However, if the option is exercised, the issuing company's debt declines if warrants were used but remains the same if it used convertibles. 19. Which of the following statements is most CORRECT? a. One important difference between warrants and convertibles is that convertibles bring in additional funds when they are converted, but exercising warrants does not bring in any additional funds. b. The coupon rate on convertible debt is normally set below the coupon rate that would be set on otherwise similar straight debt even though investing in convertibles is more risky than investing in straight debt. c. The value of a warrant to buy a safe, stable stock should exceed the value of a warrant to buy a risky, volatile stock, other things held constant. d. Warrants can sometimes be detached and traded separately from the debt with which they were issued, but this is unusual. e. Warrants have an option feature but convertibles do not. 20. Mariano Manufacturing can issue a 25-year, 8.1% annual payment bond at par. Its investment bankers also stated that the company can sell an issue of annual payment preferred stock to corporate investors who are in the 40% tax bracket. The corporate investors require an after-tax return on the preferred that exceeds their after-tax return on the bonds by 1.0%, which would represent an after-tax risk premium. What coupon rate must be set on the preferred in order to issue it at par? a. 6.66% b. 6.99% c. 7.34% d. 7.71% e. 8.09% 21. The major contribution of the Miller model is that it demonstrates that a. personal taxes decrease the value of using corporate debt. b. financial distress and agency costs reduce the value of using corporate debt. c. equity costs increase with financial leverage. d. debt costs increase with financial leverage. e. personal taxes increase the value of using corporate debt. 22. Which of the following statements concerning capital structure theory is NOT CORRECT? a. Under MM with zero taxes, financial leverage has no effect on a firm's value. b. Under MM with corporate taxes, the value of a levered firm exceeds the value of the unlevered firm by the product of the tax rate times the market value dollar amount of debt. c. Under MM with corporate taxes, rs increases with leverage, and this increase exactly offsets the tax benefits of debt financing. d. Under MM with corporate taxes, the effect of business risk is automatically incorporated because rsL is a function of rsU. e. The major contribution of Miller's theory is that it demonstrates that personal taxes decrease the value of using corporate debt. 23. Which of the following statements concerning the MM extension with growth is NOT CORRECT? a. The value of a growing tax shield is greater than the value of a constant tax shield. b. For a given D/S, the levered cost of equity is greater than the levered cost of equity under MM's original (with tax) assumptions. c. For a given D/S, the WACC is less than the WACC under MM's original (with tax) assumptions. d. The total value of the firm increases with the amount of debt. e. The tax shields should be discounted at the unlevered cost of equity. 24. Which of the following statements concerning the MM extension with growth is NOT CORRECT? a. The value of a growing tax shield is greater than the value of a constant tax shield. b. For a given D/S, the levered cost of equity is greater than the levered cost of equity under MM's original (with tax) assumptions. c. For a given D/S, the WACC is greater than the WACC under MM's original (with tax) assumptions. d. The total value of the firm increases with the amount of debt. e. The tax shields should be discounted at the cost of debt 25. Which of the following statements concerning the MM extension with growth is NOT CORRECT? a. The value of a growing tax shield is greater than the value of a constant tax shield. b. For a given D/S, the levered cost of equity is greater than the levered cost of equity under MM's original (with tax) assumptions. c. For a given D/S, the WACC is greater than the WACC under MM's original (with tax) assumptions. d. The total value of the firm is independent of the amount of debt it uses. e. The tax shields should be discounted at the unlevered cost of equity