1. The advantages of long-term debt exclude:
decrease in financial risk
relatively low, explicit after-tax cost
owners are able to maintain control
increased earnings per share through using financial leverage
2. Yasemin Hilfiger has just issued a callable preferred stock that is callable in 6 years at $70 (redemption price). The stock is currently selling for $60 (issue price) but there will be $3 issuance costs per share. Everyone including the company and its investors are expecting that the stock will be called at that time. What is the after-tax cost of this preferred stock assuming it is called, if the stock pays $6 in dividends annually and the marginal tax rate is 40%?
13.24%
7.95%
12.96%
18.09%
3. The CAPM assumes that the only risk of concern to the investor is ____, which is measured by ____.
Unsystematic risk, beta
Systematic risk, the return to the market portfolio
Systematic risk, beta
Unsystematic risk, the return to the market portfolio