Dividend payments to shareholders are different from interest payments to lenders because: a. Dividend payments are more costly to a corporation b. The interest rate is lower than the cost of equity to corporations c. Interest payments, not dividends, are deductible when calculating income taxes d. Divdends must be paid every year

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Tod ThielLv2

29 Sep 2018

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Question 1: In making Capital Structure decisions, the overall objective is to:
a)minimize the firm's WACC
b)improve cash flows as much as possible
c)maximize the tax deductions the firm receives for interest expense
d)minimize the total amount of dividends and interest the firm needs to pay

Question 2 options: Which of the below statements is true?
a)Equity financing is permanent financing, while debt financing is temporary financing
b)Debt is normally a less expensive form of capital than equity
c)corporations cannot make dividend payments to both common and preferred shareholders during the same year
d)both interest expense and dividend payments are tax deductible for the firm making them

Question 3 options: As a firm's debt increases, its _______________ also increases. This makes the firm more risky and tends to increase the firm's _____.
a)market value / expected return
b)expected return / expected dividend payout
c)leverage / beta
d)systematic risk / unsystematic risk

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32) ADRs are ________. A) securities, backed by American depositary shares (ADSs), that permit U.S. investors to hold shares of non-U.S. companies and trade them in U.S. markets B) securities, backed by Securities Exchange Commission (SEC), that permit all investors to hold shares of U.S. companies and trade them in U.S. markets C) securities, backed by American depositary shares (ADSs), that permit non-U.S. investors to hold shares of U.S. companies and trade them in U.S. markets D) securities, backed by Securities Exchange Commission (SEC), that permit U.S. investors to hold shares of non-U.S. companies and trade them in international markets.

33) The cost of preferred stock is ________. A) lower than the cost of long-term debt. B) higher than the cost of common stock. C) higher than the cost of long-term debt and lower than the cost of common stock. D) lower than the cost of convertible long-term debt and higher than the cost of common stock.

35) Regarding the tax treatment of payments to securities holders, it is true that ________. A) interest and preferred stock dividends are not tax-deductible ,while common stock dividends are tax deductible B) interest and preferred stock dividends are tax-deductible, while common stock dividends are not tax-deductible C) common stock dividends and preferred stock dividends are tax-deductible, while interest is not tax-deductible D) common stock dividends and preferred stock dividends are not tax-deductible, while interest is tax-deductible

36) According to the efficient market hypothesis, prices of actively traded stocks ________. A) can be under- or over-valued in an efficient market B) can only be under-valued in an efficient market C) do not differ from their true values in an efficient market D) can only be over-valued in an efficient market

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______ The most significant portion of the return on a share of common stock is in the form of interest.

______ Bonds are a form of equity financing that pays interest.

______ The less certain a cash flow, the higher the risk, and the lower the present value of the cash flow.

______ The tax deductibility of interest lowers the cost of debt financing, which causes the cost of debt financing to typically be lower than the cost of equity financing.

______ A preferred stockholder typically has the right to receive dividend payments before any dividends are paid to common stockholders.

______ Several investment banking firms may join together to share the financial risk associated with underwriting a new security issue.

______ In theory, to maximize their rate of return, investors should purchase a particular stock when they believe that it is undervalued and then sell it when they feel that it is overvalued.

______ In an inefficient market, stock prices adjust quickly to new public information.

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