1. What is the effective annual rate (EAR) of 12% compounded monthly? Show your work in excel using the excel functions. Show your answer in percentage format to 2 decimal points. Please post the image not the file.
2. Which of the following is correct?
I. Tax shields make debt financing more attractive, all else equal.
II. A firm's debt ratio falls when it uses excess cash to pay dividends.
III. The cost of equity is low for firms that pay no dividends, all else equal.
IV. Bankruptcy costs decrease the benefits of debt financing all else equal.