1: If the value of a levered firm is $7 million, what is the value of the same firm after it converts its capital structure to an all-equity financed firm?

$10 million

None of the other answers are correct

$14 million

$7 million

2: Air Canada is currently 100% debt financed through a long-term loan from the bank. The CFO is considering a recapitalization plan under which the firm would issue enough common share at a price of $15 per share and use the proceeds to pay off all of the long-term debt (i.e., it will become 100% equity financed).There is no penalty associated with paying off all of the long-term debt.The recapitalization would not change the company's total assets. The CFO believes that this recapitalization would reduce the WACC and increase stock price. If the company goes ahead with the recapitalization plan, which of the following must be true?

None of the other three choices must be true.

The company's earnings per share would decrease.

The company's net income would decrease.

The company's ROE would increase.

3:Staples Inc. is considering a project that has the following cash flows:

Year

Cash Flow

1

$2,000

2

3,000

3

3,000

4

1,500

The project has a payback of 2.5 years, and the firm's cost of capital is 12%. What is the project's NPV?

a.

$577.68

b.

$1,049.80

c.

$765.91

d.

$2,761.32

4:An investor purchased 200 shares of Suncor at $40.00 and later sold his investment at $31.00. If he received $2.5 in dividends, what was his total dollar return?

-$2,100

-$2,300

-$1,800

-$1,300

5:The following are some of the performance metrics Canada Goose expects for the upcoming year. What is Canada Goose's expected ROE for the upcoming year?

Assets $200,000

Interest rate 8%

D/A 65%

Tax rate 40%

EBIT $25,000

13.80%

12.51%

13.14%

14.49%