Which of the following statements is FALSE?

a. In perfect capital markets, an open market share repurchase has no effect on the stock price, and the stock price is the same as the ex-dividend price if a dividend were paid instead.

b. In perfect capital markets, holding fixed the investment policy of a firm, the firm's choice of dividend policy is irrelevant and does not affect the initial share price.

c. In a perfect capital market, when a dividend is paid, the share price drops by the amount of the dividend when the stock begins to trade ex-dividend.

d. In perfect capital markets, investors are indifferent between the firm distributing funds via dividends or share repurchases. By reinvesting dividends or selling shares, they can replicate either payout method on their own.

2. The balance sheet of MFG Trading, Ltd. has $900 million of assets, which includes $120 million of cash. The firm has 45 million shares outstanding. If MFG uses $100 million of its cash to repurchase shares, what is the new price per share?

a. $25

b. $20

c. $30

d. $27

3) HTL Realty has a market value of assets of $500,000. The firm borrows $100,000 at 5%. Assuming that the unlevered cost of equity is 15%, what is the firm's cost of equity capital?

a. 18.5%

b. 20.6%

c. 19.2%

d. 17.5%

4) JTL Energy Resources, Inc. requires an investment of $2,000,000 and borrows $1,000,000 at 8%. Assuming that the firm's Return on Equity (ROE) is 20%, the firm's pre-tax WACC is?

a. 4%

b. 15%

c. 14%

d. 7%

Answer rating: 100% (QA)

1 Option A is False In perfect capital markets an open market s... View the full answer