1) As debt is substituted for equity in the capital structure and the debt ratio increases, the behavior of the overall cost of capital is partially explained by A) the tax deductibility of interest payments B) the increase in the number of common shares outstanding C) the reduction in risk as perceived by the common shareholders D) the decrease in the cost of equity 2) Which of the following is a difference between debt and equity capital? A) Debt capital does not require periodic payments, whereas equity capital requires period payments. B) Debt capital requires a fixed rate of return, whereas equity capital requires returns in proportion to profits. C) Debt capital does not provides a tax shield, whereas equity capital provides a tax shield. D) Debt capital affects operating leverage, whereas equity capital affects financial leverage. 3) A stock split has A) little effect on a firm's capital structure B) no effect on a firm's capital structure C) a measurable effect on a firm's capital structure D) a detrimental effect on a firm's capital structure 4) The option to develop follow-on projects, expand markets, expand or retool plants, and so on that would not be possible without implementation of the project that is being evaluated is called A) growth option B) timing option C) flexibility option D) abandonment option