Closed book 

1. True

2.  1) a

     2) b

     3) c

3. True

4. False

5. False

6. D

7. D, A, B, C

8. False

9. B

10. A

11. A

12. The mix of debt and equity that minimizes the WACC and therefore maximizes firm value.

13. How you distribute earnings to shareholders, consisting of three main decisions.  1, Long run percent of earnings to be paid, 2. amount of dividend or share repurchase this quarter, 3. from where do we get the cash needed to pay the dividend.. The optimal dividend policy is the long run residual as it minimize false signals while fulling funding all positive NPV projects.