1) In capital budgeting analysis, when a company must increase its working capital in order to support a new investment in fixed assets,

1. that working capital investment is depreciated over the life of the asset

2.the working capital investment is recaptured, dollar for dollar, at the end of the assets productive life

3. the value of the working capital at the end of the project will be zero

4.working capital investment is not considered in analyzing the investment in fixed assets

5. none of the above answers is correct.

2 if a company's target cash balance in any month is greater than its ending or cumulative, cash position.

1. The company will have a surplus that it can invest
2. the company is insolvent and may face bankruptcy
3. the company should simply reduce its target cash figure
4. monthly cash outflows should be increased
5. the company will need to borrow to cover the shortfall.

3. Modigliani and Miller claimed that two factors that determine the effect of capital structure on the value of the firms are

1. Size of firm and rate of growth
2. Rate of growth and relative market share
3. Cost of debt compared with cost of equity
4. Taxes and the cost of financial distress (or default)
5. Variability of EPS and size of firm

4. An asset's book value is equal to its initial cost minus________________; a gain or loss of the sale of the asset is determined by comparing book value with___________.

1. Salve Value; Gain or loss
2. Accumulated depreciation; salvage value
3. salvage value; accumulated depreciation
4. gain or loss; salvage value
5. salvage value; gain or loss.

5. The total return of a share of stock is

1. Its dividend yield
2. its capital gains, or growth, yield
3. its yield to maturity
4. The sum of its dividend yield plus its growth yield
5. Depends on the shareholders' required rate of return.

6 Based on expected growth of 7%, your companys next dividend will be $2.10. If analysts change their growth forecast from 7% to 5.5%, what will be the revised expected value of D₁?

1. $2.215
2. $1.963
3. $2.071
4. Still $2.10
5. $1.991

7. Which of the following statements is most correct?

1. A firm that pays higher dividends will be worth more than a similar company that pays lower dividends
2. The par value of a share of common stock is $1000, just like bonds
3. The DCF stock price model assumes constant, long-term growth in dividends
4. Issuing new common stock is the only way that firms can increase their equity
5. Even over the long term, there is no necessary relationship between sales, earnings, and dividends.

8. when thinking about project risk, financial theory says that only non-diversifable or market risk is relevant to the evaluation of the project. In practice, however, many companies focus on stand-alone risk in making their evaluations. Why?

1. Projects are not traded in public markets like stocks or bonds, so the notion of market risk doesn't apply.
2. For projects, market risk is very difficult to measure and quantify
3. Few managers understand the concept of non-diversifiable risk.
4. Projects risk tends to be highly correlated with market risk; measuring one provides a reasonable estimate of the other.
5. Answers b and d are both correct.