Calculation of cost of preferred stock, cost of debt, and cost of issuing new stock.

1)  The cost of preferred stock is usually more than the cost of debt because of:

   A) low dividends

   B) tax deductibility of interest payments on debt

   C) high stock price

   D) none of the above

2)  The cost of issuing new stock is called:

   A) the cost of equity

   B) flotation costs

   C) marginal cost of capital

   D) none of the above

3)  The most expensive source of financing for a firm is:

   A) debt

   B) preferred stock

   C) retained earnings

   D) new common stock

4) The purpose of a stock split is usually to:

   A) increase the investor's wealth

   B) bring down the stock price into a lower trading range.

   C) reduce of threat of takeover

   D) decrease the number of shares outstanding

5)  As a result of the Jobs and Growth Tax Relief Act of 2003, dividends and capital gains are taxed at a maximum rate of:

   A) 38.6%

   B) 20%

   C) 15%

   D) none of the above

6)  Warrants are:

   A) investments whose value is directly related to the price of the underlying stock.

   B) the same as call options

   C) the same as put options

   D) none of the above

7)  Which of the following is an advantage of a convertible bond?

   A) downside protection is ineffectual if the bond is bought at a large premium over par value

   B) conversion may be forced on the bondholder by call provisions on the convertible bond

   C) there is downside risk for the investor

   D) none of the above

8)  The financial motives for merger include all of the following except:

   A) the portfolio effect

   B) improved access to the capital markets

   C) tax loss carry forwards

   D) synergy