1. The cost of preferred stock

A. increases as the beta of the firm increases.

B. is equal to the annual dividend divided by the par value of the stock.

C. is equal to the annual dividend divided by the present value of all the future dividend payments.

D. varies as tax rates vary.

E. is generally computed using the CAPM.

2. As an attempt to avoid bankruptcy, a firm may

A. agree to a composition with its creditors.

B. employ the stalking horse strategy.

C. develop a prepack agreement.

D. take advantage of a Section 363 auction.

E. ask a trustee to enact the absolute priority rule.

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