1. A company recently acquired an equipment with a useful life of 5 years. It has an initial cost of $1 million and expected annual cost of $50,000 on years 1 to 5. The tax rate is 25% and the discount rate is 15%. The equipment will be depreciated using the straight line method. What is the annual depreciation tax shield?

Select one:

a. $150,000

b. $200,000

c. None of THESE

d. $50,000

2.It is highly likely that the returns on stocks of companies from the same industry are positively correlated.

Select one:

True

False

3. The capital market line ____________________.

Select one:

a. illustrates the risk-return relationship between risky securities and their betas.

4.A machine has an initial cost of $500,000 and useful life of 10 years. The tax rate is 40% and the discount rate is 12%. The annual depreciation tax shield is $20,000 in years 1 to 10. What is the present value of the annual depreciation tax shield?

Select one:

a. $67,802.68

b. $45,201.78

c. $113,004.46

d. None of THESE

b. illustrates the risk-return relationship between the optimal risky portfolio and borrowing or lending at the risk free rate.

c. illustrates the risk-return relationship between portfolios in the efficient frontier and borrowing or lending at the risk free rate.

d. provides the same risk-return information than the characteristic line.