a. will be the same for all firms in the same industry. b. will remain constant over time unless the firm makes an acquisition. c. of a firm will vary over time as taxes and market conditions change. d. places more emphasis on the operations of a firm rather than the financing of a firm. e. is unaffected by changes in the financial markets. 2.) Which of the following will tend to diminish the benefit of the interest tax shield given a progressive tax rate structure? I. a reduction in tax rates II. a large tax loss carryforward III. a large depreciation tax deduction IV. a sizeable increase in taxable income a. I and II only b. I and III only c. II and III only d. I, II, and III only e. I, II, III, and IV 3.) When using the cost of debt, the relevant number is the: a. pre-tax cost of debt since most corporations pay taxes at the same tax rate. b. pre-tax cost of debt since it is the actual rate the firm is paying bondholders. c. post-tax cost of debt since dividends are tax deductible. d. post-tax cost of debt since interest is tax deductible. e. None of the above. 4.) Given the following information, leverage will add how much value to the unlevered firm per dollar of debt? Corporate tax rate: 34% Personal tax rate on income from bonds: 30% Personal tax rate on income from stocks: 30% a. $-0.050 b. $0.006 c. $0.246 d. $0.340 e. $0.660 5.) The market-to-book value ratio is implies growth and success when it is: a. less than 1. b. less than 0. c. greater than 1. d. less than 10. e. greater than 0. 6.) Estimates using the arithmetic average will probably tend to _____ values over the long-term while estimates using the geometric average will probably tend to _____ values over the short-term. a. underestimate; underestimate b. accurately; accurately c. overestimate; overestimate d. underestimate; overestimate e. overestimate; underestimate 7.) A stock has an expected rate of return of 8.3% and a standard deviation of 6.4%. Which one of the following best describes the probability that this stock will lose 11% or more in any one given year? a. less than 5% b. less than 1.5% c. less than 1.0% d. less than 0.5% e. less than 2.5% 8.) Holden BICYCLES has 1,000 shares outstanding each with a par value of $0.10. If they are sold to shareholders at $10 each, what would the capital surplus be? a. $10,000 b. $9,900 c. $100 d. $900 e. $11,000 9.) A stock had returns of 8%, -2%, 4%, and 16% over the past four years. What is the standard deviation of this stock for the past four years? a. 7.9% b. 6.6% c. 6.3% d. 7.5% e. 7.1% 10.) Suppose the Barges Corporation’s common stock has an expected return of 12%. Assume that the risk-free rate is 5%, and the market risk premium is 6%. If no unsystematic influence affected Barges’ return, the beta for Barges is ______. a. 1.00 b. 1.17 c. 1.20 d. 2.50 e. It is impossible to calculate with the information given. 11.) MM Proposition I without taxes is used to illustrate: a. the value of an unlevered firm equals that of a levered firm. b. that one capital structure is as good as another. c. leverage does not affect the value of the firm. d. capital structure changes have no effect on stockholders’ welfare. e. All of the above.

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a. will be the same for all firms in the same industry. b. will remain constant over time unless the firm makes an acquisition. c. of a firm will vary over time as taxes and market conditions change. d. places more emphasis on the operations of a firm rather than the financing of a firm. e. is unaffected by changes in the financial markets. 2.) Which of the following will tend to diminish the benefit of the interest tax shield given a progressive tax rate structure? I. a reduction in tax rates II. a large tax loss carryforward III. a large depreciation tax deduction IV. a sizeable increase in taxable income a. I and II only b. I and III only c. II and III only d. I, II, and III only e. I, II, III, and IV 3.) When using the cost of debt, the relevant number is the: a. pre-tax cost of debt since most corporations pay taxes at the same tax rate. b. pre-tax cost of debt since it is the actual rate the firm is paying bondholders. c. post-tax cost of debt since dividends are tax deductible. d. post-tax cost of debt since interest is tax deductible. e. None of the above. 4.) Given the following information, leverage will add how much value to the unlevered firm per dollar of debt? Corporate tax rate: 34% Personal tax rate on income from bonds: 30% Personal tax rate on income from stocks: 30% a. $-0.050 b. $0.006 c. $0.246 d. $0.340 e. $0.660 5.) The market-to-book value ratio is implies growth and success when it is: a. less than 1. b. less than 0. c. greater than 1. d. less than 10. e. greater than 0. 6.) Estimates using the arithmetic average will probably tend to _____ values over the long-term while estimates using the geometric average will probably tend to _____ values over the short-term. a. underestimate; underestimate b. accurately; accurately c. overestimate; overestimate d. underestimate; overestimate e. overestimate; underestimate 7.) A stock has an expected rate of return of 8.3% and a standard deviation of 6.4%. Which one of the following best describes the probability that this stock will lose 11% or more in any one given year? a. less than 5% b. less than 1.5% c. less than 1.0% d. less than 0.5% e. less than 2.5% 8.) Holden BICYCLES has 1,000 shares outstanding each with a par value of $0.10. If they are sold to shareholders at $10 each, what would the capital surplus be? a. $10,000 b. $9,900 c. $100 d. $900 e. $11,000 9.) A stock had returns of 8%, -2%, 4%, and 16% over the past four years. What is the standard deviation of this stock for the past four years? a. 7.9% b. 6.6% c. 6.3% d. 7.5% e. 7.1% 10.) Suppose the Barges Corporation’s common stock has an expected return of 12%. Assume that the risk-free rate is 5%, and the market risk premium is 6%. If no unsystematic influence affected Barges’ return, the beta for Barges is ______. a. 1.00 b. 1.17 c. 1.20 d. 2.50 e. It is impossible to calculate with the information given. 11.) MM Proposition I without taxes is used to illustrate: a. the value of an unlevered firm equals that of a levered firm. b. that one capital structure is as good as another. c. leverage does not affect the value of the firm. d. capital structure changes have no effect on stockholders’ welfare. e. All of the above.

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