Questions 15 .

You are an activist investor looking to put pressure on firms that have too much cash to return some of that cash to stockholders. Which of the following firms would you put the most pressure on to return cash? Assume that all of these firms have a cost of capital of 10% and an optimal debt ratio of 40%

Question 15 options:

Firm A: ROC=25%, Actual debt ratio=40%

Firm D: ROC=5%, Actual debt ratio=35%

Firm C: ROC=5%, Actual debt ratio=10%

Firm B: ROC=25%, Actual debt ratio=60%

Questions 16.

Which of the following represent(s) features of real options?

I. The higher the volatility of the underlying asset the higher the value of the option

II. An option protects against downside risk but preserves the upside potential

III. The longer the maturity of an option the higher the value of the option

IV. An option gives the holder the right but not the obligation to buy, sell or use an asset

Question 16 options:

I, II, III and IV

I only

IV only

II only