Using the following variables, calculate an organization's cost of debt on a $100,000 bond.

• R_f: 2%
• Credit-risk rate: 6%
• t: 20%

• a.)$7,840
• b.)$1,600
• c.)$6,400
• d.)$8,000

• Calculate a company's total leverage given the following information:

• Net income = $35,000
• Revenue = $70,000
• Variable costs = $15,000
• a.)Cannot calculate without ROE data
• b.)1.57
• c.)2.33
• d.)Cannot calculate without knowing the degree of operating leverage

Eadie owns 300 shares of stock in Company A that were valued at $2/share. After Company A announces a 3-to-1 reverse stock split, Eadie calculates that she will own __________.

• a.)900 shares valued at $0.67/share
• b.)900 shares valued at $2/share
• c.)100 shares valued at $2/share
• d.)100 shares valued at $6/share

What does the residual dividend model assume about the relationship between dividends and share value?

• a.)It assumes that share values fall if no dividends are distributed.
• b.)It assumes there is no appreciable relationship.
• c.)It assumes that share value rises when the target payout ratio is met.
• d.)It assumes that share value rises when dividends are consistent.

Why might investors prefer stock dividends over cash dividends?

• a.)If they are seeking flexibility
• b.)If they are seeking a stable share price
• c.)If they are seeking a predictable income stream
• d.)If they are seeking short-term liquidity

Oran just noticed that the price of a stock in his portfolio went up after the company announced a larger than usual dividend. The market's response to the company's decision is attributable to __________.

• a.)information asymmetry
• b.)capital gains
• c.)the dividend effect
• d.)dividend irrelevance