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1.What will be the retained earnings if a firm with $5000 shares outstanding earns $10 per share and has 30% plowback ratio? It will increase by: $15,000 $30,000 $35,000 $50,000 2.The purpose of a sinking fund is to: Reduce the par value of stock over time take advantage of the tax break on preferred stock periodically retire debt prior to final maturity allow risky corporations to avoid bankruptcy 3. Protective covenants prevent bond issuers from irresponsible over-borrowing behavior and are offered for the benefit of: common shareholders preferred shareholders bondholders both common and preferred shareholders 4. a companys board of directors is primarily an agent of the company's management employees shareholders management and employees 5. the system of electing a board of directors where each director is voted on separately is known as: majority voting supermajority voting cumulative voting proxy voting 6. according to MM, if individuals cannot obtain the same borrowing terms as firms, then: capital structure may be relevant capital structure may be irrelevant individuals should not invest in levered firms firms should increase their payments to individuals 7. which of the following would not be expected to change with changes in the firms capital structure? weighted-average cost of capital expected return on equity expected return on assets expected earnings per share 8. according to MM, "homemade" dividends are created by: purchasing only stocks that continually increase their regular dividends selling a portion of your non-dividend paying holdings purchasing treasury bills rather than common stocks withdrawinig cash from savings on dividend payment dates 9. an increase in share price following an incresae in dividends is logical if the firm borrows to obtain cash for the dividend increased dividend signals higher future earnings financial markets are efficient clientele effect is not important

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