1-A warrant is an option, and as such it cannot be used as a \"sweetener.\" True

Question

1-A warrant is an option, and as such it cannot be used as a "sweetener."

True

False

                    2- Preferred stock can provide a financing alternative for some firms when market conditions are such that they    cannot issue either pure debt or common stock at any reasonable cost.    

True

False

3- The owner of a convertible bond owns, in effect, both a bond and a call option.

True

False

4- Assume that a piece of leased equipment has a relatively high rather than low expected residual value. From the lessee's viewpoint, it might be better to own the asset rather than lease it because with a high residual value the lessee will likely face a higher lease rate.

True

False

5- Unlike bonds, the cost of preferred stock to the issuing firm is the same on a before-tax and after-tax basis. This is because dividends on preferred stock are not tax deductible, whereas interest on bonds is deductible.

True

False

6- The full amount of a lease payment is tax deductible provided the contract qualifies as a true lease under IRS guidelines.

True

False

7- Operating leases help to shift the risk of obsolescence from the user to the lessor.

True

False

8- Leasing is typically a financing decision and not a capital budgeting decision. Thus, the availability of lease financing cannot affect the size of the capital budget.

True

False

9- Leasing is often referred to as off-balance sheet financing because lease payments are shown as operating expenses on a firm's income statement and, under certain conditions, leased assets and associated liabilities do not appear on the firm's balance sheet.

True

False

10- The problem of dilution of stockholders' earnings never results from the sale of call options, but it can arise if warrants are used.

True

False

Explanation / Answer

1. False.

2. True

3. True

4. False

5. True

6. True

7. True

8. False

9. True

10.True

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