S. The MM theory with taxes implies that firms should issue maximum debt. In practice, this is not true because: A. debt is more risky than equity B. bankruptcy is a disadvantage to debt. C. firms will incur large agency costs of short term debt by issuing long term debt. D. Both A and B. E. Both B and C Which of the following statements about preferred stock is true? A. 6. Unlike dividends paid on common stock, dividends paid on preferred stock are a tax- deductible expense. B. Unpaid dividends on preferred stock are a debt of the corporation. C. If preferred dividends are non-cumulative, then preferred dividends not paid in a particular year will be carried forward to the next year. D. There is no difference in the voting rights of preferred and common stockholders E. None of the above. 7. Assuming the issuers of the following bonds are the same, which of the following statements is true? A. Secured debt has higher coupon rate than a debenture B. Subordinated debenture has higher coupon rate than senior debt C. A bond with a sinking fund has higher coupon rate than one without D. A non-callable bond has higher coupon rate than a callable bond E. None of the above The flow-to-equity (FTE) approach in capital budgeting is defined to be the: A. discounting all cash flows from a project at the overall cost of capital. B. scale enhancing discount process C. discounting of the levered cash flows to the equity holders for a project at the required return 8 on equity D. dividends and capital gains that may flow to shareholders of any firm. E. discounting of the unlevered cash flows of a project from a levered firm at the WACC. 9. The APV method to value a project should be used when the: A. project's level of debt is known over the life of the project. B. project's target debt to value ratio is constant over the life of the project C. project's debt financing is unknown over the life of the project. D. Both A and B. E. Both B and C. S. The MM theory with taxes implies that firms should issue maximum debt. In practice, this is not true because: A. debt is more risky than equity B. bankruptcy is a disadvantage to debt. C. firms will incur large agency costs of short term debt by issuing long term debt. D. Both A and B. E. Both B and C Which of the following statements about preferred stock is true? A. 6. Unlike dividends paid on common stock, dividends paid on preferred stock are a tax- deductible expense. B. Unpaid dividends on preferred stock are a debt of the corporation. C. If preferred dividends are non-cumulative, then preferred dividends not paid in a particular year will be carried forward to the next year. D. There is no difference in the voting rights of preferred and common stockholders E. None of the above. 7. Assuming the issuers of the following bonds are the same, which of the following statements is true? A. Secured debt has higher coupon rate than a debenture B. Subordinated debenture has higher coupon rate than senior debt C. A bond with a sinking fund has higher coupon rate than one without D. A non-callable bond has higher coupon rate than a callable bond E. None of the above The flow-to-equity (FTE) approach in capital budgeting is defined to be the: A. discounting all cash flows from a project at the overall cost of capital. B. scale enhancing discount process C. discounting of the levered cash flows to the equity holders for a project at the required return 8 on equity D. dividends and capital gains that may flow to shareholders of any firm. E. discounting of the unlevered cash flows of a project from a levered firm at the WACC. 9. The APV method to value a project should be used when the: A. project's level of debt is known over the life of the project. B. project's target debt to value ratio is constant over the life of the project C. project's debt financing is unknown over the life of the project. D. Both A and B. E. Both B and C
