True Or False

1 Managers would not issue additional equity if they thought the current stock price was less than the true value of the stock.

2 When calculating the cost of debt, a company needs to adjust for taxes, because interest payments are tax deductible.

3 The corporate form of business organization is often accompanied by separation of ownership and management.

4 Adding debt increase percent of firm financed with low-cost debt (w_d) and increases percent financed with high-cost equity (w_e).

5 The constant growth formula for stock valuation does not work for a firm with a negative growth rate (i.e., a declining growth rate) in its dividend.

6 The rate of return, discount rate, hurdle rate, and opportunity cost of capital all have the same meaning.

7 A safe dollar is always worth less than a risky dollar because the rate of return on a safe investment is generally low and the rate of return on a risky investment is generally high.

8 If a firm raises capital by selling new bonds, the buyer is called the "issuing firm," and the coupon rate is generally set equal to the required rate.

9 One can use the discounted cash-flow formulas that are used to value common stocks in order to value entire businesses.

10 The IRR decision rule specifies that all independent projects with an IRR lower than the cost of capital should be accepted.

11 Maximizing profits is the same as maximizing the value of the firm.

12 A companys target capital structure affects its weighted average cost of capital.