5.The direct expense of a new equity issue includes the: A)cost of underpricing the stock. B)underwriting spread and other expenses. C)underwriting spread, other expenses, and cost of underpricing. D)underwriting spread.

6.One can continue to earn CCA tax shields from an asset sold from an existing pool if:

7.On average, the share price a day after an IPO increases by 15-20%. This suggests that

8.Acme Corporation only has AAA rated bonds and publicly traded equity on its balance sheet. Acme has a WACC of 13% and it has a tax rate of 40%. Suppose you buy 5% of the bonds issued by Acme and 5% of the shares. Your expected return on this portfolio is

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4 9.The security market line plots expected nominal returns as a function of beta given a market risk premium. If the expected rate of inflation rises then the security market line should A)shift down with the same slope B)shift up with the same slope C)shift up with a higher slope D)remain unchanged.

10.Suppose project A has an IRR of 10 percent and project B has an IRR of 20 percent. If the discount rate is 15%, one can then conclude that:

11.An implicit cost of increasing the proportion of debt in a firm's capital structure is that: