Question 21 2 pts Which of the following statements is false? 1. The lease-equivalent loan is the loan that is required on the purchase of the asset that leaves the purchaser with the same obligations as the lessor would have. 2. Lease obligations themselves could trigger financial distress. 3. When a firm enters into a lease, it is committing to lease payments that are a fixed future obligation of the firm. 4. When a firm leases an asset, it is effectively adding leverage to its capital structure (whether or not the lease appears on the balance sheet for accounting purposes). O 3 4 1 Question 22 2 pts Which of the following statements is false? 1. Because we are getting the entire asset when we purchase it with the loan, the loan payments are higher than the lease payments. 2. In a perfect market, the cost of leasing and then purchasing the asset is equivalent to the cost of borrowing to purchase the asset 3. With a lease we are financing the entire cost of the asset, with a standard loan we are financing only the cost of the economic depreciation of the asset during its life. 4. The amount of the lease payment will depend on the purchase price, the residual value, and the appropriate discount rate for the cash flows. 2 4 3 O 1 D Question 23 2 pts 1 Question 23 2 pts Which of the following statements is false? 1. Increasing the pay-for-performance sensitivity comes with the added benefit of reducing manager's risk. 2. Stock and option grants give managers a direct incentive to increase the stock price to make their stock or options as valuable as possible. 3. By tying compensation to performance, the shareholders effectively give the manager an ownership stake in the form 4. During the 1990s, most companies adopted compensation policies that more directly gave managers an ownership stake by including grants of stock or stock options to executives. 0 1 O 3 o 2 Question 24 2 pts Question 24 2 pts Which of the following statements is false? 1. A convertible bond can be thought of as a regular bond plus a special type of call option. 2. On the maturity date of the bond, the strike price of the embedded call in a convertible bond is equal to the face value of the bond divided by the conversion ratio-that is, the conversion price. 3. Calling a convertible bond transfers the remaining time value of the conversion option from shareholders to bondholders. 4. If the stock price is low so that the embedded call is deep out-of-the-money, the conversion provision is not worth much and the bond's value is close to the value of a straight bond-an otherwise identical bond without the conversion provision O 1 3 o 4 O2 nantian 2 7 Question 25 2 pts Which of the following statements is false? 1. Managers are much less committed to dividend payments than to share repurchases. 2. Share repurchases are a credible signal that the shares are underpriced, because if they are over-priced a share repurchase is costly for current shareholders. 3. While an increase of a firm's dividend may signal management's optimism regarding its future cash flows, it might also signal a lack of investment opportunities. 4. Managers will clearly be more likely to repurchase shares if they believe the stock to be undervalued. O 1 O 3 4 O2 D Question 26 12 pts Loughran . Dittor (2002) rane that nocnort theory nrovides an evnlanation for undernricing What