4.a (10 marks) The U.S. tax code stipulates that corporate income taxes can be

returned to a company if the company suffers a negative net income, in proportion

to the size of the losses. Does this stipulation encourage the use of equity in

companies' capital structure? Why or why not?

4.b (10 marks) Ben Bernanke has commented that raising debt ratio can put

constraints on the risk-taking behavior of managers. But is it a good idea to put on

more debts if the company is a high-tech company and facing fierce competitions

from existing and potential rivals? Why or why not?

4.c (10 marks) If a company JKL announces that it will repurchase stocks by

issuing new debts, is its stock price likely to rise, fall, or remain unchanged? Why?