. Which of these dates occurs last in time (when arranged in the chronological order)?

A)
Payment date B) Ex-dividend date C) Record date D) Dividend declaration date

2. Which of the following lists events in the chronological order from earliest to latest?
A) Record date, declaration date, ex-dividend date B) Declaration date, record date, ex-
dividend date C) Declaration date, ex-dividend date, record date D) None of the above

3. On January 2, Michigan Mining declared a $25-per-share quarterly dividend payable

on March 9th to stockholders of record on February 9. What is the latest date by which
you could purchase the stock and still get the recently declared dividend? A) February 5
B) February 6 C) February 7 D) February 8

4. Dutch auction process is the same as: A) discriminatory price auction B) uniform price
auction C) English auction D) none of the above

5. The par value of the outstanding shares is defined as: A) Retained earnings B) Legal
capital C) Book value of equity D) None of the above

6. The total market value (V) of the securities of a firm with both debt (D) and equity (E)
is: A) V = D - E B) V = E - D C) V = D * E D) V = D + E

7. If a firm is financed with both debt and equity, the firm's equity is known as: A)
unlevered equity B) levered equity C) preferred equity D) none of the above

8. Under what conditions would a policy of maximizing the value of the firm not the
same as a policy of maximizing shareholders' wealth? A) If the issue of debt increases
the probability of bankruptcy B) If the firm issues debt for the first time C) If the beta
of equity is positive D) If an issue of debt affects the market value of existing debt

9. Modigliani and Miller's Proposition I states that: A) The market value of any firm is
independent of its capital structure B) The market value of a firm's debt is independent
of its capital structure C) The market value of a firm's common stock is independent of its
capital structure D) None of the above

10. The law of conservation of value implies that: A) The value of a firm's common stock
is unchanged when debt is added to its capital structure B) The value of any asset is
preserved regardless of the nature of the claims against it C) The value of a firm's
debt is unchanged when common stock is added to its capital structure D) None of the
above

11. If a firm permanently borrows $100 million at an interest rate of 8%, what is the
present value of the interest tax shield? (Assume that the tax rate is 30%) A) $8.00
million B) $5.6 million C) $30 million D) $26.67 million E) None of the above
12. If a firm borrows $50 million for one year at an interest rate of 10%, what is the
present value of the interest tax shield? Assume a 30% tax rate. (Approximately.) A)
$1.364 million B) $1.5 million C) $1.0 million D) $4.545 million E) None of the above

13. In order to find the present value of the tax shields provided by debt, the discount rate
used is the: A) cost of capital B) cost of equity C) cost of debt D) none of the above

14. In order to calculate the tax shields provided by debt, the tax rate used is the: A)
average corporate tax rate B) marginal corporate tax rate C) average of shareholders'
tax rates D) average of bondholders' tax rates

15. If a firm permanently borrows $50 million at an interest rate of 10%, what is the
present value of the interest tax shield? Assume a 30% tax rate. A) $50.0 million B)
$25.0 million C) $15.0 million D) $1.5 million

16. The after-tax weighted average cost of capital is determined by: A) Multiplying the
weighted average after tax cost of debt by the weighted average cost of equity B) Adding
the weighted average before tax cost of debt to the weighted average cost of equity C)
Adding the weighted average after tax cost of debt to the weighted average cost of
equity D) Dividing the weighted average before tax cost of debt to the weighted average
cost of equity

17. In calculating the weighted average cost of capital, the values used for D,E and V are:
A) book values B) liquidating values C) market values D) none of the above

18. Given the following data: Cost of debt = rD = 6%; Cost of equity = rE = 12.1%;
Marginal tax rate = 35%; and the firm has 50% debt and 50% equity. Calculate the after-
tax weighted average coat of capital (WACC): A) 8% B) 7.1% C) 9.05% D) None of the
given values

19. A firm has a total market value of $10 million and debt has a market value of $4
million. What is the after-tax weighted average cost of capital if the before - tax cost of
debt is 10%, the cost of equity is 15% and the tax rate is 35%? A) 13% B) 11.6% C)
8.75% D) None of the given answers

20. When weighted average cost of capital (WACC) is used to value a levered firm, the
interest tax shield is: A) ignored. B) considered by deducting the interest payment from
the cash flows. C) automatically considered because the after-tax cost of debt is used
in the WACC formula. D) none of the above