Multiple Choice

QUESTION 16 A positive NPV project requires a $20M investment. What market friction would lead a shareholder to prefer that the firm issue shares instead of debt to fund the project? O Bankruptcy Costs O Agency O Taxes QUESTION 17 Due to _concerns, a dividend being lower than expected can send a negative signal to investors. O bankruptcy costs O agency O tax-related QUESTION 18 An all-equity firm consists of a single project that will produce a perpetual cash flow of either $100M (good state) or $30M (bad state) next year. The probability of the good state is 30%. The beta of the asset cash flows is 1.25 and the risk-free rate is 3 percent and the market risk premium is 8 percent. There are 6M shares outstanding. What is the price per share of this firm? O 65.38 O 83.33 O 7.52 QUESTION 19 An all-equity firm consists of a single project that will produce a perpetual cash flow of either $100M (good state) or $30M (bad state) next year. The probability of the good state is 30%. The beta of the asset cash flows is 1.25 and the risk-free rate is 3 percent and the market risk premium is 8 percent. There are 6M shares outstanding. The manager claims that the cash flows are high. To prove it, they will issue a $25M dividend. Most of the shareholders are institutional investors. Would the public believe that the manager's signal is credible? O Yes O Not enough information