1. In a world with no corporate taxes, when an all-equity firm decides to issue debt:
1. Firm value increases because debt is cheaper than equity.
2. Firm value decreases because having debt makes the firm riskier.
3. Firm value stays the same because a value is not affected by capital structure.
4. The effect on firm value depends on how much debt the firm issues.
5. The effect on firm value depends on the cost of debt
2. The market risk premium for next period is 9.20% and the risk-free rate is 3.80%. Stock Z has a beta of 1.11 and an expected return of 8.40%. What is the:
a) Market's reward-to-risk ratio
b) Stock Z's reward-to-risk ratio