Which of the following equity concepts would you expect to be least important to a financial analyst? A) Par value per share B) Additional paid-in capital Retained earnings Net common equity 9. An increase in a firm's financial leverage will: A) increase the variability in earnings per share. B) reduce the operating risk of the firm. increase the value of the firm in a non-MM world. increase the WACC. 10. Financial risk refers to the: A) risk of owning equity securities. B) risk faced by equityholders when debt is used. general business risk of the firm. possibility that interest rates will increase. 11. Ignoring taxes, a firm's weighted-average cost of capital is equal to: A) its expected return on assets. B) its expected return on equity. the sum of expected return on equity and expected return on debt. its expected return on assets times the debt-equity ratio. 12. What is the proportion of debt financing for a firm that expects a 24% return on equity, a 16% return on assets, and a 12% return on debt? Ignore taxes. A) 54.0% B) 60.0% 66.7% 75.0% 13. A firm has an expected return on equity of 16% and an after-tax cost of debt of 8%. What debt-equity ratio should be used in order to keep the WACC at 12%? A) .50 B) .75 1.00 1.50 14. Which of the following is not found in John Lintner's "stylized facts" of corporate dividend policies?
A. Firms have long-run target dividend payout ratios.
B. Managers focus more on dividend absolute levels than on its changes.
C. Dividend changes follow shifts in long-run, sustainable levels of earnings rather than short-run changes in earnings.
D. Managers are reluctant to make dividend changes that might have to be reversed.
Answer:B
Which of the following equity concepts would you expect to be least important to a financial analyst? A) Par value per share B) Additional paid-in capital Retained earnings Net common equity 9. An increase in a firm's financial leverage will: A) increase the variability in earnings per share. B) reduce the operating risk of the firm. increase the value of the firm in a non-MM world. increase the WACC. 10. Financial risk refers to the: A) risk of owning equity securities. B) risk faced by equityholders when debt is used. general business risk of the firm. possibility that interest rates will increase. 11. Ignoring taxes, a firm's weighted-average cost of capital is equal to: A) its expected return on assets. B) its expected return on equity. the sum of expected return on equity and expected return on debt. its expected return on assets times the debt-equity ratio. 12. What is the proportion of debt financing for a firm that expects a 24% return on equity, a 16% return on assets, and a 12% return on debt? Ignore taxes. A) 54.0% B) 60.0% 66.7% 75.0% 13. A firm has an expected return on equity of 16% and an after-tax cost of debt of 8%. What debt-equity ratio should be used in order to keep the WACC at 12%? A) .50 B) .75 1.00 1.50 14. Which of the following is not found in John Lintner's "stylized facts" of corporate dividend policies?
A. Firms have long-run target dividend payout ratios. B. Managers focus more on dividend absolute levels than on its changes. C. Dividend changes follow shifts in long-run, sustainable levels of earnings rather than short-run changes in earnings. D. Managers are reluctant to make dividend changes that might have to be reversed.