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1. Boss Co is a large listed company financed by both equity and debt.

Dividend policy

Liquidity management

Interest rate management

Management of relationship with the bank

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2. In relation to an irredeemable security paying a fixed rate of interest, which of the following statements is correct?

As risk rises, the market value of the security will fall to ensure that investors receive a reduced yield

As risk rises, the market value of the security will rise to ensure that investors receive an increased yield

As risk rises, the market value of the security will fall to ensure that investors receive an increased yield

As risk rises, the market value of the security will rise to ensure that investors receive a reduced yield

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3. A company has annual after-tax operating cash flows of $4m per year which are expected to continue in perpetuity. The company has a cost of equity of 10%, a before-tax cost of debt of 5% and an after-tax weighted average cost of capital of 8% per year. Corporation tax is 20%.

$80m

$40m

$50m

$25m

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