1. If the CEO of a large, diversified, firm were filling out a fitness report on a division manager, which of the following situations would be likely to cause the manager to receive a better grade? In all cases, assume that other things are held constant.

a. The division's DSO is 40, whereas the average for its competitors is 30.

b. The division's debt ratio is above the average for other firms in the industry.

c. The division's inventory turnover is 9, whereas the average for its competitors is 8.

d. The division's total assets turnover ratio is below the average for other firms in its industry.

2. Orwell Building Supplies' last FCF was $1.75 million. Its FCF growth rate is expected to be constant at 25% for 3 years and at 20% for 4 years, after which FCFs are expected to grow at a rate of 6% forever. What is the forecast horizon?

a. 5

b. 8

c. 6

d. 7

3. Perpetual preferred stock from Franklin Inc. sells for $88.5 per share, and it pays an $7.9 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 4% of the price paid by investors. What is the company's cost of preferred stock for use in calculating the WACC?

a. 0.0893

b. 0.0857

c. 0.0930

d. 0.0658

4. Assume a project has normal cash flows. All else equal, which of the following statements is CORRECT?

a. A project's IRR increases as the cost of capital declines.

b. A project's MIRR is affected by changes in the cost of capital.

c. A project's payback increases as the cost of capital declines.

d. A project's NPV decreases as the cost of capital declines.