Question 17 question bank id 86046 type multiple

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QUESTION: 17 [QUESTION BANK ID: 86046] TYPE: MULTIPLE CHOICE CORRECT Suppose you believe that Johnson Company's stock price is going to increase from its current level of $22.50 sometime during the next 5 months. For $310.25 you can buy a 5-month call option giving you the right to buy 100 shares at a price of $25 per share. If you buy this option for $310.25 and Johnson's stock price actually rises to $45, what would your pre-tax net profit be? << HIDE ANSWERS A -$310.25 $1,689.75 $1,774.24 $1,862.95 $1,956.10 B C D E
QUESTION: 18 [QUESTION BANK ID: 112740] TYPE: MULTIPLE CHOICE CORRECT Which of the following statements about interest rate and reinvestment rate risk is CORRECT? << HIDE ANSWERS B C D E
QUESTION: 19 [QUESTION BANK ID: 58644] TYPE: MULTIPLE CHOICE CORRECT Which of the following statements is CORRECT? << HIDE ANSWERS A When calculating the cost of debt, a company needs to adjust for taxes, because interest payments are deductible by the paying corporation.
When calculating the cost of preferred stock, companies must adjust for taxes, because dividends paid on preferred stock are deductible by the paying corporation.
Because of tax effects, an increase in the risk-free rate will have no effect on the after-tax cost of debt than on the cost of common stock. If a company’s beta increases, this will decrease the cost of equity used to calculate the WACC.

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