Question 17 Which of the following statements is correct? Adobe Acrobat You will not be O The before-tax cost of debt, which is lower than the after-tax cost, is used as the component cost of debt for purposes of developing the firm's WACC. O The cost of issuing preferred stock by a corporation must be adjusted to an after-tax figure because of the 70 percent dividend exclusion provision for corporations holding other corporations' preferred stock The firm's cost of external equity capital is the same as the required rate of return on the firm's outstanding common stock. O An increase in the risk-free rate is likely to increase the costs of both debt and equity financing. Funds acquired by the firm through retaining earnings have no cost because there are no dividend or intere payments associated with them, but capital raised by selling new stock or bonds does have a cost. Question 24 Which of the following statements is correct? 1 pts O Dual class shares with differential voting rights is typically good for shareholder value since it enables those with the greatest cashflow interest in the firm the most voting power. A golden parachute typically enhances shareholder value by ensuring that the CEO is protected during a merger. O A poison pill, also known as a shareholder rights plan, typically enhances shareholder value by preventing hostile takeovers. CEO-Chairperson duality typically enhances shareholder value by granting the CEO greater control over the board of directors' decisions. Staggered (or classified) boards are typically bad for shareholder value since they make it more difficult to stage a proxy campaign for a director seat. Question 26 Suppose that Stock X has lower beta than Stock Y. Which of the following are true? O Stock X will lower higher returns than Stock Y O Stock X has lower standard deviation than Stock Y O Stock X has lower Sharpe ratio than Stock Y O Stock X has lower correlation with the market than Stock Y Stock X has lower systematic risk than Stock Y