Question 6:

MM Proposition I without taxes proposes that:

A) the value of an unlevered firm exceeds that of a levered firm.

B) the value of a levered firm exceeds that of an unlevered firm.

C) leverage does not affect the value of the firm.

D) shareholder wealth is directly affected by the capital structure selected.

E) there is one ideal capital structure for each firm.

Question 7:

A __________ is an alternative method to cash dividends which is used to pay out a firm's earnings to shareholders.

A) payment-in-kind

B) acquisition

C) stock split

D) merger

E) share repurchase

Question 8:

The relationship between the prices of the underlying stock, a call option, a put option, and a riskless asset is referred to as the _______ relationship.

A) straddle

B) strangle

C) covered call

D) put-call parity

E) protective put

Question 9:

The optimal capital structure has been achieved when the:

A) weight of equity is equal to the weight of debt.

B) debt-equity ratio selected results in the lowest possible weighed average cost of capital.

C) debt-equity ratio is such that the cost of debt exceeds the cost of equity.

D) debt-equity ratio is equal to 1.

E) cost of equity is maximized given a pretax cost of debt.

Question ll]: Overton Markets stock has an expected return of 7.3 percent and betas of: {3mm = 1.06; ,3; = 1.01; and f3\" = 0.52. This expectation is based on a three-factor model with expected values; of: GNP growth of 2.6 percent; ination of 3.1 percent; and export growth of 1.4 percent. However, actual growth in these factors turns out to be 3.1 percent, 2.6 percent, and 0.2 percent, respectively. Calculate the stock's total return if the company announces that an important 3 patent ling has been granted sooner than expected and will earn the company 5 percent more in return. A) 11.55% B) 16.02% C) 10.90% D) 110291: E) 12.20%