If the financial markets are efficient, then investors should expect their investments in those markets to:produce arbitrage opportunities on a routine basis

If the financial markets are efficient, then investors should expect their investments in those markets to:produce arbitrage opportunities on a routine basis.earn extraordinary returns on a routine basis.have zero net present values.generally have positive net present values.produce negative returns on a routine basis. If behavioral finance holds, this implies:some investors are irrational all of the time.all investors are rational all of the time.all investors are irrational some of the time.all investors are irrational all the time.some investors are irrational some of the time Which one of these would generally be considered the most rational action for a tax-paying investor?Throwing darts to select their portfolio holdingsHolding a less than fully diversified portfolio of securitiesTrading frequentlyIgnoring taxes when making investment decisionsSelling their losing and holding their winning securities Keim s research presents evidence that the difference in performance between small capitalization stocks andlarge capitalization stocks is largest in the month of:January. October.May.April.August. Which of these help prevent arbitrage from totally correcting market mispricings?I. Trading costsII. Market domination by rational professionalsIII. Number of amateur investorsIV. Near-term riskIII and IV onlyI and II onlyI, III, and IV onlyI, II, III, and IVI only If the market is fully efficient, then an announcement by a firm of a new product with a high net present valuewill cause the market price of that firm’s stock to:decline gradually over the next few days.rise gradually over the next few days.remain constant.immediately decline to a new level equivalent to the decreased value of the firm.immediately increase to a new level equivalent to the increased value of the firm. Based on the efficient market hypothesis, a stock’s abnormal return at Time t is an indicator of: cumulative market expectations.semistrong form inefficiency.conservatism.weak form inefficiency.a release of information at Time t.0 Your firm has a $295,000 bond issue outstanding. These bonds have a 6.35 percent coupon, pay interestsemiannually, and have a current market price equal to 101 percent of face value. What is the amount of theannual interest tax shield given a tax rate of 35 percent?$6,621.94$6,556.38$12,297.89$6,125.50$12,176.13 DL Trucking has a cost of equity of 14.4 percent and an unlevered cost of capital of 13 percent. The companyhas $20,000 in debt that is selling at par value. The levered value of the firm is $46,000 and the tax rate is 35percent. What is the pretax cost of debt?12.35%11.75%9.38%11.20%10.20% The interest tax shield has no value for a firm when the: I. the tax rate is equal to zero.II. the debt-equity ratio is exactly equal to 1.III. the firm is unlevered.IV. a firm elects an all-equity capital structure.I, III, and IV onlyI, II, and IV onlyI and III onlyII, III, and IV onlyII and IV only Durbin, Inc., is an unlevered firm with a total market value of $365,000 with 20,000 shares of stockoutstanding. The firm has expected EBIT of $24,000 if the economy is normal and $28,000 if the economybooms. The firm is considering a $73,000 bond issue with an attached interest rate of 5.5 percent. The bondproceeds will be used to repurchase shares. Ignore taxes. What will the earnings per share be after therepurchase if the economy booms?$1.47$1.61$1.75$1.50$1.68 JL Lumber has a debt-equity ratio of .62. The firm’s required return on assets is 12 percent and its current costof equity is 15.60 percent. What is the firm’s pretax cost of debt? Ignore taxes.6.25%6.19%6.45% 6.40%6.03% An unlevered firm has a cost of capital of 14.6 percent and earnings before interest and taxes of $223,000.Assume the firm borrows $700,000 at a 7 percent rate of interest. The applicable tax rate is 34 percent. What isthe value of the levered firm?$1,907,018.11$546,082.19$1,246,082.19$547,018.11$1,946,082.190 Which of these proposes that the value of a levered firm exceeds the value of an unlevered firm by the presentvalue of the tax shield?MM Proposition II with taxMM Proposition II without taxMM Proposition I with taxMM Proposition I with and without taxesMM Proposition I without tax Leverage becomes a disadvantage to a firm as soon as the firm’s earnings before interest:exceed the break-even point.are taxed.fall below the break-even point. become negative.exceed the firm’s unlevered earnings. A firm is technically insolvent when:it is unable to meet its financial obligations.it files the legal forms petitioning for bankruptcy protection.it has a negative net worth on its balance sheet.the value of the firm’s assets is less than the value of the firm’s liabilities.the value of its stock declines by more than 50 percent in any given 12-monthperiod. Which one of these best describes the relationship between bondholders and stockholders at a time when itappears the firm may be facing increased financial distress?Both bondholders and stockholders will encourage the firm to take on new high riskprojects.Stockholders have an incentive to underinvest in new projects to the detriment ofbondholders.Bondholders tend to milk the property at the expense of stockholders.Both parties tend to work together for the common good of the firm.Bondholders will tend to lower their required rate of interest so the firm can affordadditional financing until its financial status improves. A firm that has a negative net worth is said to be:in legal bankruptcy.experiencing accounting insolvency. experiencing a business failure.experiencing technical insolvency.in Chapter 11 bankruptcy reorganization. Which one of these actions by a firm is an example of milking the property? Assume the firm is in a period offinancial distress.Paying the semiannual bond interestCutting a regular dividendPaying an extra dividendRepaying a bond that maturedPaying a regular dividend The complete termination of a firm as a going business concern is called a:reorganization.merger.repurchase program.liquidation.divestiture. Which one of these relationships will exist if a firm is operating under its optimal capital structure?The firm will be financed with equal amounts of long-term debt and equity.The net present value of the firm will equal zero. The value of the firm equal the maximum value obtainable according to the MMtheories.The firm’s cost of capital will equal the risk-free rate.The present value of the financial distress costs will equal the present value of thetax shield on debt. ATC has a value of $70,000 in a good economy and $55,000 in a recession. The firm has $60,000 of debt. Theprobability of a recession is 50 percent. The firm is considering a project that would change the firm values to$73,000 in a good economy and $50,000 in a recession. If the firm accepts this project, the firm value will______ and shareholder value will ______.decrease by $1,000; increase by $1,500decrease by $1,000; decrease by $1,000decrease by $2,000; decrease by $2,000increase by $1,500; decrease by $1,000increase by $1,500; increase by $1,500 Quick Mart has been paying a quarterly dividend of $1.20 a share. Which of the following are valid reasons forthe firm to reduce or eliminate these dividends?I. The firm is on the verge of violating a bond restriction.II. The firm wants to save cash for an acquisition with a 40 percent premium.III. The firm can raise new capital easily at a very low cost.IV. Congress just changed the tax laws eliminating all taxes on capital gains. I, II, III, and IVI and IV onlyII, III, and IV onlyII and IV onlyI, II, and IV only A stock currently sells for $8.40 a share. What type of stock split does the firm need to do if it wants toincrease the price so that it trades around $25 a share?2-for-3 reverse stock split3-for-1 stock split5-for-2 stock split1-for-3 reverse stock split2-for-5 reverse stock split Robinson’s has 18,500 shares of stock outstanding with a par value of $1 per share and a market price of $36 ashare. The balance sheet shows $18,500 in the common stock account, $315,000 in the capital in excess of parvalue account, and $189,000 in the retained earnings ac
count. The firm just announced a 3-for-2 stock split.What will be the value of the common stock account after the split?$22,500$12,500$15,000$18,500$10,000 Of the following factors, which one is considered to be the primary factor affecting a firm’s dividend decision?Maintaining consistency with the historical dividend policy Attracting institutional investorsSustainable changes in earningsAttracting retail investorsThe personal taxes company stockholders incur on dividend distributions0 Men’s Place has 15,000 shares of stock outstanding with a par value of $1 per share and a market value of$19.50 per share. The balance sheet shows $15,000 in the common stock account, $218,000 in the capital inexcess of par value account, and $312,500 in the retained earnings account. The firm just announced a 50percent (large) stock dividend. What is the market value per share after the dividend?$19.50$39.00$15.25$29.25$13.00 Alpha Company is paying a $1.50 per share dividend today. There are 200,000 shares outstanding with a parvalue of $1 per share. As a result of this dividend, the:common stock account will decrease by $150,000.capital in excess of par value account will decrease by $150,000.common stock account will decrease by $300,000.retained earnings will decrease by $300,000.retained earnings will decrease by $150,000.0 A cash payment made by a firm to its owners when some of the firm’s assets are sold off is called a(n):liquidating dividend. regular cash dividend.extra cash dividend.special dividend.share repurchase.0 End Zone just paid an annual dividend of $.68 a share. The firm has a target payout ratio of .6 and a speed ofadjustment value of .4. What is the expected value of next year’s annual dividend if the firm expects itsearnings per share to be $2.20?$.53$.90$1.32$.94$1.09