Question

can someone finish all , cuz i don't have enough questions remaining.

11. The Static Theory of Capital Structure says that firms will increase their leverage (debt) until what happens?

a. The firm goes bankrupt.

b. the firm cannot borrow any more.

c. the value of the tax break is offset by the disadvantage of financial distress.

d. the amount of debt exceeds the amount of equity.

e. None of the above.

12. When a company stock gets down to a price of $1.75, and the popular trading range is considered to be $20 – $50, the company would probably do a:

a. 4-1 forward split.

b. 10% stock dividend

c. 1-3 reverse split

d. 12-1 reverse split

e. 3-7 straight split

13. Jeremiah owns 200 shares of TLC stock, which has 9000 shares outstanding at a current price of $28.00 per share. TLC has just declared a 7% stock dividend.   How many shares will Jeremiah have AFTER the stock dividend and what will the price be?

a. 214 shares; $26.17

b. 9,630 shares, $28.00

c. 186 shares; $29.96

d. 8,370 shares; $26.04

e. 214 shares; $29.96

14. If Sara’s Inc pays $4.00 annually on its preferred stock and the stock sells for $36.00, what is the cost of preferred stock?

a. 7.78%

b. 9.00%

c. 9.72%

d. 11.11%

e. Not enough information to tell.

15. Rank the following groups from first to last to be paid in a bankruptcy:

I.   Common Stockholders

II. Bondholders

III. Employees

III, II, I

II, III, I

I, II, III

I, III, II

III, I, II

  

16. If long term corporate bonds have been earning an average of 6.25% over the past 10 years, and the risk free rate is 3.81%, what is the risk premium?

a. 3.81%

b. 2.44%

c. 13.95%

d. 6.25%

e. 10.06%

17. You own a portfolio that has $1,200 in Stock A and $1,900 in Stock B. If the expected returns on the two stocks are 9% and 11%, respectively, what is the expected return on the portfolio?

a. 10.22%

b. 11.44%

c. 10%

d. 8.89%

e. 9.23%

18. The value of the firm is MAXIMIZED when

a. the WACC is minimized.

b. interest rates are expected to increase

c. equity markets are depressed

d. the firm has mostly equity in its capital structure

e. WACC is maximized

19. The difference between the WACC formula and the WAFC formula is

a. WACC uses preferred stock as the middle part.

b. WAFC does not have the tax break on debt.

c. WACC uses smaller numbers than WAFC.

d. The portfolio weights on WACC have to total to one, but not on WAFC.

e. WAFC combines common and preferred, but WACC accounts for them separately.

20. Rank the following from first to last as guidelines for the Compromise Dividend Policy:

I.    Avoid cutting the dividend

II.   Maintain a target debt/equity ratio.

III.   Avoid rejecting positive NPV projects in order to pay a dividend.

III, II, I

I, III, II

III, I, II

II, III, I

II, I, III

Answer 1

I am going to answer the first 4 parts of the question:

11c) The value of the tax break is offset by the disadvantage of financial distress.

12d) 12-1 reverse split. This will increase the trading price for stock to 21 (1.75*12)

13a) 214 shares; 26.17

        Market value of shares: 9000*28= 252,000.00

        After 7% stock dividend number of shares will increase to= 9000*1.07= 9630

        Note market value of shares will still remain same.

        Hence new price per share: 252,000/9630= 26.16

        New shareholding of Jeremiah= 200*1.07= 214

14d) 11.11% (4/36*100)