please check underlined answers, and if there is something wrong please specify correct answer and explain.

1)According to M&M prop. II (w/ & w/o taxes), what increases as leverage increases?

a)The cost of debt

b)The cost of equity

c)The number of shares

2)What is the "pecking order" of finance (how do firms prefer to finance themselves)? From left to right, left being their #1 preference.

a)Equity > Debt > Internal Funds

b)Debt > Internal Funds > Equity

c)Internal Funds > Debt > Equity

d)Internal Funds > Equity > Debt

3)Dividends are said to be "sticky". Why is this?

a)Because the dollar amount allocated for dividends cannot be changed per SEC regulations

b)Because once announced, a company cannot stop dividend payments for at least 1 year

c)Because investors expect to get paid at least the same amount every quarter and the stock price suffers if this doesn't happen

d)Because once a dividend is announced, the company cannot do a stock repurchase simultaneously

4)In capital structure theory, what is the benefit of issuing debt over issuing equity?

a)Debt decreases tax expenses while equity does not

b)Debt creates positive NPV projects while equity does not

c)Debt decreases volatility of cash flows while equity does not

d)Debt increases dividend payouts while equity does not

5)Financial distress occurs when a company is not able to meet its financial obligations, compromising its profitability. All of the following are ways a company can partially address financial distress, except for

a)Cut investments

b)Request a credit rating review

c)Issue equity

d)Refinance debt

e)Cut dividends

6)As of Jan 2019, Fitbit had zero debt on its balance sheet. According to MM theory (without taxes) and assuming that Fitbit can borrow debt at a cheaper cost than its cost of equity, what would happen if Fitbit increased its leverage ratio conservatively such that it does not increase its cost of financial distress?

a)Fitbit's company value would increase

b)Fitbit's company value would decrease

c)Fitbit's company value would remain unchanged

d)None of the above

7)As of Jan 2019, Fitbit had zero debt on its balance sheet. According to MM theory (with taxes) and assuming that Fitbit can borrow debt at a cheaper cost than its cost of equity, what would happen if Fitbit increased its leverage ratio conservatively such that it does not increase its cost of financial distress?

a)Fitbit's company value would increase

b)Fitbit's company value would decrease

c)Fitbit's company value would remain unchanged

d)None of the above

8)As of Jan 2019, Fitbit had zero debt on its balance sheet. According to our definition of financial distress covered in class, if Fitbit's sales (top line) were declining, how much of it would be due to a high cost of financial distress?

a)Financial distress would likely be one of the main reasons

b)Financial distress would be one of the reasons, but not the main one

c)Financial distress would not be a reason at all

d)Can't tell with the limited information given

9)As discussed in class, any project that is NPV positive creates value, thus also increasing company value.According to payout policy theory, a stock repurchase is a:

a)Positive NPV project

b)Negative NPV project

c)Delayed NPV project

d)Zero NPV project

10)On average, what do we actually observe in the market following the announcement of a stock repurchase and a dividend initiation? (Both as separate events):

a)The stock price increases for the stock repurchase, but drops for the dividend initiation

b)The stock price increases for both the stock repurchase and the dividend initiation

c)The stock price drops for the stock repurchase, but it increases for the dividend initiation

d)The stock price drops for both the stock repurchase and the dividend initiation