The interest tax shield is a key reason why:
A. the required rate of return on assets rises when debt is added to the capital structure.
B. the value of an unlevered firm is equal to the value of a levered firm.
C. the net cost of debt to a firm is generally less than the cost of equity.
D. the cost of debt is equal to the cost of equity for a levered firm.
E. firms prefer equity financing over debt financing.
Which one of the following statements related to dividend policy is correct?
A. The primary question related to dividend policy is whether or not a firm should ever
pay a dividend.
B. Both dividends and dividend policy are irrelevant.
C. Dividend policy focuses on the timing of dividend payments.
D. Homemade dividends increase the importance of a firm's dividend policy decisions.
E. Whether or not a firm ever pays a dividend is irrelevant to equity valuation.
Mark owns both a March $20 put and a March $20 call on Alpha stock. Which one of
the following statements correctly relates to Mark's position? Ignore taxes and
A. A price decrease in Alpha stock will increase the value of Mark's call option.
B. A March $30 call is worth more than Mark's $20 call.
C. The time premium on an April $20 put is less than the time premium on Mark's put.
(Assume both puts expire in the same calendar year.)
D. A price increase in Alpha stock from $26 to $28 will increase the value of Mark's
E. If the intrinsic value of Mark's put increases by $1 then the intrinsic value of his call
must either decrease by $1 or equal zero.