If the financial markets are efficient, then investors should expect their investments in those markets to: [removed] produce arbitrage opportunities on a routine basis. [removed] earn extraordinary returns on a routine basis. [removed] have zero net present values. [removed] generally have positive net present values. [removed] produce negative returns on a routine basis. If behavioral finance holds, this implies: [removed] some investors are irrational all of the time. [removed] all investors are rational all of the time. [removed] all investors are irrational some of the time. [removed] all investors are irrational all the time. [removed] some investors are irrational some of the time Which one of these would generally be considered the most rational action for a tax-paying investor? [removed] Throwing darts to select their portfolio holdings [removed] Holding a less than fully diversified portfolio of securities [removed] Trading frequently [removed] Ignoring taxes when making investment decisions [removed] Selling their losing and holding their winning securities Keim s research presents evidence that the difference in performance between small capitalization stocks and large capitalization stocks is largest in the month of: [removed] January. [removed] October. [removed] May. [removed] April. [removed] August. Which of these help prevent arbitrage from totally correcting market mispricings? I. Trading costs II. Market domination by rational professionals III. Number of amateur investors IV. Near-term risk [removed] III and IV only [removed] I and II only [removed] I, III, and IV only [removed] I, II, III, and IV [removed] I only If the market is fully efficient, then an announcement by a firm of a new product with a high net present value will cause the market price of that firm’s stock to: [removed] decline gradually over the next few days. [removed] rise gradually over the next few days. [removed] remain constant. [removed] immediately decline to a new level equivalent to the decreased value of the firm. [removed] immediately increase to a new level equivalent to the increased value of the firm. Based on the efficient market hypothesis, a stock’s abnormal return at Time t is an indicator of: [removed] cumulative market expectations. [removed] semistrong form inefficiency. [removed] conservatism. [removed] weak form inefficiency. [removed] a release of information at Time t. [removed] Your firm has a $295,000 bond issue outstanding. These bonds have a 6.35 percent coupon, pay interest semiannually, and have a current market price equal to 101 percent of face value. What is the amount of the annual interest tax shield given a tax rate of 35 percent? [removed] $6,621.94 [removed] $6,556.38 [removed] $12,297.89 [removed] $6,125.50 [removed] $12,176.13 DL Trucking has a cost of equity of 14.4 percent and an unlevered cost of capital of 13 percent. The company has $20,000 in debt that is selling at par value. The levered value of the firm is $46,000 and the tax rate is 35 percent. What is the pretax cost of debt? [removed] 12.35% [removed] 11.75% [removed] 9.38% [removed] 11.20% [removed] 10.20% The interest tax shield has no value for a firm when the: I. the tax rate is equal to zero. II. the debt-equity ratio is exactly equal to 1. III. the firm is unlevered. IV. a firm elects an all-equity capital structure. [removed] I, III, and IV only [removed] I, II, and IV only [removed] I and III only [removed] II, III, and IV only [removed] II and IV only Durbin, Inc., is an unlevered firm with a total market value of $365,000 with 20,000 shares of stock outstanding. The firm has expected EBIT of $24,000 if the economy is normal and $28,000 if the economy booms. The firm is considering a $73,000 bond issue with an attached interest rate of 5.5 percent. The bond proceeds will be used to repurchase shares. Ignore taxes. What will the earnings per share be after the repurchase if the economy booms? [removed] $1.47 [remove…
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