Question 9 Which one of the followings states that the value of a firm is unrelated to the firm's capital structure? Capital Asset Pricing Model O M&M Proposition ! O M&M Proposition II Law of One Price O Efficient Markets Hypothesis Question 7 Floation cost includes O Gross spread O Direct expenses O Indirect expenses O Abnormal returns O All of above Question 6 If an IPO is underpriced then the: O investors in the IPO are generally unhappy with the underwriters. issue is less likely to sell out. O share price will increase on the first day of trading. O issuing firm is guaranteed to be successful in the long term. O issuing firm receives more money than it probably should have. points Questions Which of the followings proposes that there is a tradeoff between level of borrowing and benefit of tax shields up a point after which financial distress costs start kicking in? Static capital structure theory O M&M Proposition M&M Proposition II Pecking order theory Question 4 Which of the followings is (are) correct for Pecking Order Theory: 1. Optimal capital structure arguments don't apply II. There is no order of funds to be used III. Equity is the last resort to raise capital IV. Profitable firms use less debt O I, II and III O II, III and IV O I, II, and IV O I, III and IV O I, II, III and IV Question 3 Which one of the followings is not implied by dividend clientele effect? O Some investors, like hedge funds, might prefer immediate dividend payouts O Some investors, like pension funds, might prefer low or no dividend payouts O Agency type Il problems might arise because of dividend policy Dividend payout policy is likely to be irrelevant O Tax might be one motivation for observed investor demand for dividend Question 2 5 points Sare ARE For calculating cost of equity, we can rely on dividend growth model or SML approach. Both models might suffer from the assumption that past is a good predictor of future. True False